When you want to purchase a home, timing is crucial. It takes a lot of prep work ahead of time so that when you find the house that calls to you, you are ready to make an offer. Finding the perfect home and then realizing you’re not ready to purchase it is a significant letdown. To avoid that feeling of disappointment, here’s a checklist to help you know when to buy a house. Checking off these items will help you make sure you are financially and mentally ready to purchase a home.
Get Your Finances In Order
When lenders look at your finances, they compare your debt-to-income ratio and look at your credit score. Your debt-to-income ratio determines how much money they will lend you, and your credit score decides how much interest you will have to pay for the loan.
Your credit score is crucial to you getting a low-interest loan, so if your score is on the low end, take the time to obtain your free credit report at www.annualcreditreport.com and start chipping away at your debt. Check out the Homes For Heroes website for ways to reduce your debt, and start seeing positive changes in your credit score. The higher your credit score is, the lower your interest will be. Plus, with less debt, you’ll have more to put towards a down payment on your house.
Be a Budget Champion
Knowing how to budget is not a talent we are born with. It takes lots of practice and fine-tuning to be a king of your budget. Buying a house should not change the way you manage your money, but it will change where the money goes, to a point.
If you struggle to remember paying your bills, or you don’t really know where your money goes each month, take a step back and ask yourself how you handle your money. If the answer is anything less than “look at my pretty monthly budget,” then you need to figure that out before you take on a new monthly payment.
Search online for a budget planner that works for you and start noting down how much money comes in each month and where it goes. Knowing what happens to your money will help you to understand how to make it work for you instead of having it work you over. Once you know your money better, you can start planning for that house payment.
Consider Your New Monthly Payment
As mentioned above, the lenders you go to will look at your debt-to-income ratio, but they use your gross monthly income, which is a lot higher than the money you put in the bank each month. The lender might tell you that you can afford a $250,000 loan, but you may need to look at a lower price to find your affordable dream home. To fully understand what your monthly payment will be, you have to look at the mortgage payment as well as the following:
- Property Taxes
- City Assessments
- Utilities – Gas, water, sewer
- HOA fees (if applicable)
Services such as Cable, Internet, and Garbage
These fees will add to your monthly payment, so once you know you can pay them, you can head out for your home buying quest. If the lender pre-approves you for $250,000, use a payment calculator to estimate what your monthly payment will be. The calculator will ask you the price of your suggested home, down payment, credit score, and zip code to figure out your other applicable fees and your total monthly payment. If you’re already paying rent that is close to that amount, then you’re set. If you aren’t paying that amount in rent, start putting the extra cost into your down payment savings account each month. You’ll be able to guarantee your finances for the month as well as save more money towards your down payment.
Make Sure You Can Pay a 20% Down Payment
Most lenders require a 20% down payment before they’ll give you a loan. Some programs, such as the HUD, The Good Neighbor Next Door, accept smaller down payments. Even if your requirement is less than 20%, paying more for the down payment is an excellent way to lower your monthly costs. The more money you save, the better.
You Are Ready To Be a Homeowner
If you are in the renter’s game, you have a landlord that helps with specific issues like fixing broken appliances or replacing them when they wear down. Being a homeowner makes it your responsibility to make repairs, pay for replacements, fix holes in the wall, and change the temperature of your water heater. Owning a home means you’re in it full-time, so make sure it’s a step you’re ready to make and then take the plunge into homeownership.
You Have Money Put Away for House Repairs
Unless you are buying a brand new house, your newly acquired home will need some repairs, if not general remodeling. Make sure you have extra money on top of your 20% down payment to help you make changes to your new home. Even if it’s merely painting the walls a new color, or replacing the oven, make sure you have a large enough amount put away to help you get started. Some experts suggest having 1% of your home’s purchase price annually. For a house of $250,000, that’s $2,500 a year, or just $210 a month.
If you’re missing a few things from this checklist, take the time to figure them out. Even missing one item can keep you from getting the right house for the right price. Once you’ve checked off every item on this list, then you’ll be able to say with confidence, “I’m on my way to being a homeowner.”
When you are ready to become a homeowner, Homes for Heroes will be here to help you find the home of your dreams and save you money. Sign up to speak with a local home buying specialist in your area to get started!