If you are planning to purchase a home in the near future, there are some smart moves that you can make to try and help ensure your finances are steady and in great shape to comfortably afford a home. It’s no secret that when you purchase a home it will be one of, if not the largest purchases you’ll ever make, and thus, it’s vital to ensure that you can manage the financial responsibilities that come along with homeownership.
Have an Emergency Fund
Regardless of home ownership status, every household should have a healthy emergency fund. Many working Americans discovered the importance of this in 2020 when things shut down and many jobs were put on hold. The ideal emergency savings fund should cover 6 to 12 months of all living expenses, not just your mortgage. Think of all of your bills, not just related to the house but credit card payments, car payments, insurance, groceries, streaming services, etc.
You want this money to be kept safe and separate and untouched during large life purchases, especially when it comes time to purchase a home. While it might be tempting to use this money to cover closing costs or a down payment. It needs to be safeguarded to use for true emergencies like the loss of a job or a medical accident or diagnosis.
Get Your Credit Score Healthy Before You Purchase a Home
If you have a less-than-ideal credit score or a credit report that reads “little to no history,” this will take time to correct. It is in a buyer’s best interest to retain a high and healthy credit score. When lenders see that a borrower has little to no credit history, they won’t consider a loan at all. It is considered too risky because there is no record of the potential borrower having responsibility for smaller amounts of borrowed money.
Do a Test of Paying for a Mortgage
If you have an ideal home in mind, it is a good idea to look at homes that are similar to what you are looking for. Check out the prices of those homes, and use a mortgage calculator to estimate a monthly payment for a mortgage on a home in that price range. Now pretend you are making those mortgage payments for a few months. Live as if you are paying for that home. This will help you to determine if this is a comfortable and affordable way to live. It will help you to adjust to a different home-buying budget or set goals to increase your income allowing you to purchase a home that you love. For example, if you are renting and your rent payment is $1,600, but the mortgage on your potential home would be $2,000, then practice “paying” $2,000 in rent by putting the extra $400 into a separate account that isn’t used for other bills. This is also a great way to save up for closing costs and other associated fees when it comes time to purchase a home.
Save for Out of Pocket Costs
Every home buyer will need to pay some out-of-pocket costs for their home purchase. Not every loan will require a large downpayment. Some loans require a zero down payment, however, the home buyer will have to pay extra in mortgage insurance. Talk over loans and purchase strategies with a financial expert to help you determine what would be the best use of your money. How much do you want to save up for out-of-pocket costs?
Not every home buyer is going to put 20% down on their home purchase. Some buyers might be able to secure a loan with a lesser term. There are many different options and plans that lead to different out-of-pocket requirements. Set goals for these costs and put them in a separate savings account to help you make the best and most financially sound home purchase.
If you are ready to purchase a home along the Carolina coasts, we know the area and have the local knowledge needed to find the perfect neighborhood that suits all of your wish lists and must-have’s. Contact us today to make your real estate dreams a reality!