Buying a home is probably the biggest investment you’ll ever make and sometimes it’s hard to know when to take this big step. So, before you start fantasizing about where you’re going to display your collection of salt and pepper shakers, take a second to ask yourself if buying a home is the right move for you.
Before looking at new homes, review your personal finances and figure out what you can afford as a monthly payment. Don’t forget to include utilities, home insurance, property taxes, possible Home Owners Association fees, and potential private mortgage insurance (PMI). Your total housing expenses should not exceed 28 percent of your monthly gross income.1
Need help figuring out how much you can realistically afford? Check out our four budgeting ideas to figure out how much home you can afford.
Before you even start looking at homes, consider how much debt you currently owe. If you’re constantly using your credit card to pay other bills, it’s probably not the right time to buy a house. Spend some time looking for ways to cut back on unnecessary expenses. Consider paying down some of your other loans first. And check your credit score too. The higher your score, the better rate you’ll mostly likely qualify for when applying for a mortgage.
It’s possible to get a mortgage with a small down payment. But the more you put down on a home, the less you have to finance. So, a larger down payment could mean smaller monthly payments. It’s generally recommended that you put at least three percent of the total purchase price of a home as a down payment.2 Some loans offer exceptions where you can put less down, but you may be subject to private mortgage insurance (PMI) costs each month.
Before the down payment, you’ll also need money for the earnest deposit. This is a way to show a seller you’re serious about your offer. Other closing costs to consider include taxes, appraisals, insurance, and title fees.
Remember, after you purchase your home there are additional expenses that you'll need to consider. Will you need lawn equipment to take care of a large yard? Are there a lot of renovations or redecorating that you'll want to make in the future? Will you need to purchase more furniture for your larger space? It's not uncommon for first-time homeowners to overlook these additional expenses. It pays to do some research first.
Another piece of consideration is your level of commitment. If you don’t have a stable job, or if you’re thinking of relocating to a new area in a few years, it might be better to wait on buying a home. Buying a home can be cheaper than renting in the long run. But if you buy a house and sell it within two years, you could lose money on your investment.
Everyone deserves to have a space to call home. To eliminate some stress during the home buying process, make sure you do your research up front about the potential costs and change in lifestyle that you'll face after you buy a house. If you need help figuring out a budget, remember we're always here to help you. We can't wait to see the home you choose!
1McWhinney, J. (2022, August 12). How Much Mortgage Can I Afford? Investopedia. Retrieved from https://www.investopedia.com/articles/pf/05/030905.asp
2Kearns, D. (2023, May 12). How Much Money Do I Need to Put Down on a Mortgage? Investopedia. Retrieved from https://www.investopedia.com/mortgage/mortgage-guide/down-payment/