Thing of buying your first house? Consider these four factors first
Ready to buy your first house? Here are four things you need to consider first.
Buying your first home is an incredible personal decision – it’s also a big financial milestone. It could mean your family is growing, your finances are in better shape than ever, and shows that you’re ready to take on the responsibilities of homeownership.
But with such great reward, comes great responsibility. So, if you’re thinking about buying a house in the near future, here are four things you should consider first.
1) Think about why you’re buying
Buying a home is probably the biggest financial commitment you’ll ever make, so it’s important to really be sure about your investment before you put any capital forward.
Are you buying because it seems like the next step in adulthood? Or are you buying because you’re financially stable and ready to add to your growing collection of capital assets? Finding the answer to these questions will help you determine whether or not it’s the right time for you to buy.
We’ll discuss this in more detail later, but other questions you should consider when shopping for a home include:
- Am I just buying because the price is right?
- Can I really afford to buy a house?
- Will I want to live here five years from now?
2) Where your finances stand
Once you have a general idea of the questions above, you’ll need to take a deeper look at your finances to decide if you’re ready to buy. After all, buying a house when you’re not financially stable could translate to mounting debt and serious headaches. When evaluating your financial standing, here’s what to look for.
Down payment size
Although you can certainly get a mortgage to help you initially finance your home , you will need to first put a down payment on a house to secure the sale. If the amount is not sizable enough, you might end up with high mortgage payments that could end up being unmanageable to uphold in the long-term.
So, how much should your down payment be? Financial experts generally recommend putting approximately 20% of the home’s cost down, but this number ultimately depends on your unique financial situation.
If you need help determining how much you should put down, you can input the home’s cost, location, and your credit score to find the down payment range you should target when buying a house.
Your credit score
Whether you’re looking at your financing options or determining your down payment, your credit score is going to be an important number when buying your first home. Here are the credit scores ranges you can use as a guideline:
If you’re like most first-time homebuyers in the U.S., you’ll need to select a financing plan in order to buy a house. Luckily, there are many to choose from, so you can find one that suits your needs based on the amount, frequency of payments and the lifetime of the loan.
The most common mortgage type in the U.S. is a 30-year fixed rate mortgage, but if you’re not able to put as much money down on your down payment, a jumbo mortgage with a 5% down payment may be more viable for your situation.
Deciding how much you can afford, not only when it comes to a downpayment but what you’ll be able to pay each month, doesn’t have to be overly-complicated. Instead of asking yourself “how much mortgage can I afford?” use a mortgage calculator to easily add in all of the factors that will make a difference. It will make it easy to determine the price range you need so you won’t have to stretch yourself too thin.
3) How long you want to live there
In general, investment experts say that homebuyers should plan to live in their home for about five years from the time they make the investment.
This certainly doesn’t mean you have to live there forever in order to make your investment worth it, but you should definitely have a plan for how you’ll make your mortgage payments from month to month. Maybe renting out a portion of your home would cover the cost, for example.
4) The housing market
Once you’ve confirmed that you’re financially stable enough to afford a home and you’ve evaluated your personal and financial goals, your next step should be looking at the housing market. There are many indicators to consider, but the housing market index is one of the most common.
Buy with confidence
Buying a house is an overwhelming experience. You have to think about your finances, your desired location, home features, and more. As you’re navigating the financial aspect, use this article as a guide to help you get started – and buy with confidence when you’re ready.
Photo by Michele Purin