Three Things To Consider Before Buying A Home

August 13, 2020


With today’s interest rates at historic lows, perhaps you are thinking it is time to buy a home.  This is always a significant decision whether it is your first home, a vacation home or time to resize your current home.  There’s a lot that goes into the purchasing process and it can be very stressful.  The good news is that a little advance planning can make it all a bit easier.


Here are three questions that’ll help make home buying a little bit easier:

What Can I Afford ?

First and foremost, getting your finances in order means understanding your total income and what it can buy.  While there are lots of online calculators out there to give you some quick numbers, approach with caution.

The general rule according to experts is to spend no more than 30 to 38% of your monthly (pre-tax) income on housing costs. This includes all costs involved in homeownership — from monthly loan payments to insurance.

Taking a close look at your budget to figure out what you can afford is critical.  Setting aside funds early for a down payment will help significantly when it comes time to putting in an offer on your dream home.  Consider putting aside work bonuses, tax refunds and setting up automatic deposits into a savings account.


How Much Do I Need ?

Next you’ll need to figure out exactly how much you need to have in savings.  Being pre-qualified before you start searching for your home may give you the upper hand when it comes time to making an offer. Pre-qualification is an estimate of how much a lender may be willing to lend you but note that it does not take into account all your monthly expenses.

First, you’ll need enough to afford a down payment on the house — typically about 20% of the purchase price.  In some cases, you might be able to put down significantly less, though you’ll probably be required to pay mortgage insurance as well.

When creating your budget, you will want to consider costs such as closing costs, repairs, monthly home expenses, moving expenses, furnishings and unexpected emergencies.  You may want to steer on the conservative side if your expenses are high.  You are likely to need to show a bank that you have savings to cover a couple months’ worth of mortgage payments and closing costs – between 2 to 5% of the purchase price. You will need to show that your income is sufficient to cover all your new expenses as well as home insurance and possibly mortgage insurance.

It can become very tempting to make an offer on a home that’s at the higher end of your budget, but make sure you will still have enough income for future savings such as college costs and retirement.  if you and your spouse work, a great rule of thumb is to stick to a budget in which one’s person’s income can cover the costs of the house. Stick to your budget so you avoid getting into a situation where you can’t afford the mortgage payment or the additional expenses that come with owning a home.


What’s Next- What Should I Do Prior to Making an Offer?

At this point you reviewed your budget; you started putting funds aside and now you want to get started with your home search.

Before you move forward with making an offer, you will want to check your credit score.  It is important to dispute any errors and also avoid opening any new accounts such as credit cards, auto loans and etc.  that may impact your pre-approval amount and interest rate.

You might also consider getting a rate quote from more than one lender.  Shopping your rate could save you money over the term of your mortgage.  Consider getting quotes from at least two or three mortgage lenders.  Ask about the different types of mortgages, discount points and what combination is best for you to consider.


Buying a home is always exciting but getting your finances and documents in order prior to starting your search makes it much more manageable and enjoyable.


By Susie McLane