Buying and owning a home is a cornerstone of the American Dream, but in reality the process of doing so can be nightmare if you unprepared. Learning how to buy a new home can help get into the home of your dreams faster and make the entire process that much easier.
It’s easy to get lost in the fantasy of shiny new homes for sale, and you may even begin daydreaming about how you will decorate your future home. But before you even step foot in an open house or browse the real estate market for a new home, here are a few practical tips for learning how to buy a new home.
Get real about your finances
The topic of finances can make many people uncomfortable, however having a clear picture of where you stand financially will support your efforts in buying a home. Before reaching out to a real estate agent or lender, such as a bank, it’s important to know exactly what your credit score is.
Like a financial “scarlet letter”, your credit score continues to follow you throughout your adult life as you navigate the complexities of major financial decisions such as buying a home or vehicle. A good credit score means a lower interest rate on your home loan. If your credit score is low, consider building it before starting the process of buying a home.
Like, get really real about your finances
Can afford to put a sizeable down payment towards the purchase of a new home? Although you don’t always have to put money down when you finance a home, it’s still recommended. If you can’t afford to put a minimum of 10% of the home’s price down as a payment when financing, then it would be wise to reconsider moving forward.
In an ideal financial situation, you should be able to put at least 20% down in order to avoid having to pay for private mortgage insurance (PMI), which serves as a safety net for lenders in the unfortunate event you’re unable to make your mortgage payments. The cost of PMI ranges anywhere between 0.3% and 1.5% of the mortgage and greatly depends on the size of your down payment and ? surprise! ? your credit score.
Seriously though, get real about your finances
Living in your dream home can quickly become a nightmare when you realize you can’t afford unexpected expenses such as a leaky roof, a faulty furnace, plumbing problems, and other common home repairs. Even if you’re financially able to qualify for a home loan with a low interest rate and make your monthly mortgage payments, it’s important to be aware of unexpected cost, home maintenance, and taxes.
Learning how to buy a new home has much more to do with financial preparation than it does with picking out wall colors and deciding where the furniture will go! Practicing sound personal finance is a major part of understanding how to buy a new home, and if you’re already doing so then you’re half way there!