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Buying a home can be a bit intimidating. There is so much paperwork and so many things to think about. Many people jump into the home buying process without being properly prepared and then they find out that they cannot afford to buy the home that they have fallen in love with.
If you have been starting the process of home shopping, you might be trying to figure out the best ways to prepare your finances for this new adventure. You will have much better luck finding and securing the home of your dreams if you are ready for the process before you start shopping. Being ready to buy can make the difference between a painless home purchase process and one that is tough to navigate.
If you are ready to learn more about the ways to prepare your finances for your first home purchase, you need to read on!
Ways to prepare your finances for your first home purchase
These tips will help you to be ready for your home purchase. Having all the right financial planning in place before you buy can make all the difference when you find the home of your dreams and want to make an offer.
1. Use the 28% rule
This is one of the best rules of thumb to use for your home buying process. This rule states that your mortgage should never be more than 28% of your gross income each month. This is a number that is high enough to add some built-in cushion for surprise costs like repairs as well as basic costs like insurance.
The 28% rule is also a good way to be sure that you will meet the debt-to-income ratio to see how much home you are eligible to buy. Banks will look at your income compared to your debts and determine just how much you can actually afford to pay each month for your mortgage payment. This is the step where many people find out that they cannot afford to buy the home they have picked out, so using the 28% rule will help you to be sure that you know how much you can afford to pay per month before you apply for a loan.
2. Prepare for your down payment
The other place that many homebuyers run into trouble is down payment home purchases. Lenders will usually require 20% down for home. This means that you will have to have this 2% in cash and on hand to secure your loan. If you have to come up with this cash last minute just to make sure that you can secure your loan, you will probably run into issues for the loan approval or getting the loan bound.
Saving up 20% of the cost of any home that you are thinking of buying is critical before you apply for the loan. You might not be sure how to know what the right amount of cash in savings is, but if you do some research into the cost of homes that you like, you can easily get a ballpark idea of the amount of money that you will need in savings for your down payment. This is one of the most critical steps of the home buying process that needs to be taken care of in advance to prepare your finances for your home loan.
3. Remember there are other costs
The other thing that you need to remember is that there are other costs that are associated with home buying beyond the purchase price of the home. You should think about costs like yard maintenance, insurance, monthly utilities, and more. Some people are able to afford their home purchase but then they find out that the cost for utilities and the price for upkeep on the property eats up all of their remaining cash each month.
Another thing that you will need to think about is the location of your home. If you are likely to end up without power or other utilities in the winter, you might need to pay for protection that will keep your home comfortable and livable during these periods. There are always costs that crop up that you could not have prepared for, but you can mitigate some of the discomfort of this part of homeownership by taking a hard look at your finances with this in mind.
4. Be realistic
The last thing that future homeowners should always do is be realistic about their finances and their goals. Many people will go home shopping and find a house that is more expensive than they planned on buying but that they love. Just because you love a home and wish you could buy it does not mean that you can comfortably afford to do so.
Everyone should be able to afford their mortgage with some money left over each month for emergencies and other things that you cannot plan for. Being able to afford the mortgage on a house does not mean that you can comfortably afford to live there happily. Always be careful of getting excited about a home purchase that will cause you heartache later when reality sets in.
Preparing to buy a home can be easy
Taking the time to save some money, look at your finances in detail, and be pragmatic about your goals as a homeowner can help you be ready to buy your house. You will want to make sure that you are thinking of many details besides whether or not the house you like will suit your needs to live comfortably. Taking the time to budget and plan out your finances before you even start home shopping can make all the difference between having a smooth buying experience and struggling to get the home that you have always wanted.
Planning ahead to get your finances in order is the most important step that you can take to be sure that you will get the home of your dreams with ease.
Read more: Prevent home buyer’s remorse