Are You Ready to Buy a Home?

Buying a home is one of the biggest financial decisions you’ll ever make — and it’s about more than just finding a fenced-in yard with a pool. While it’s easy to get caught up in visions of mid-July plunges, taking a hard look at your financial readiness and planning ahead can help ensure you don’t end up in over your head when it’s time to make those mortgage payments.

Assess Your Savings

The first step toward homeownership is ensuring you’ve saved enough for a down payment. While some loan programs allow for smaller down payments, aiming for 20% of the home’s purchase price can help you avoid private mortgage insurance (PMI) and lower your monthly payments.

And don’t forget about closing costs, which typically range from 2% to 5% of the home’s price. Additionally, having an emergency fund with three to six months’ worth of living expenses is essential to cover unexpected repairs or other surprises that can come with owning a home.

Review Your Credit Score

Your credit score (or FICO score) plays a crucial role in determining your mortgage interest rate — and ultimately, the budget for a home purchase. Before you start house hunting, request a free copy of your credit report and check for errors. If your score needs improvement, take steps to pay down debt and avoid opening new lines of credit until after your purchase.

Understand the True Cost of Homeownership

Owning a home comes with two major categories of expenses: your mortgage … and everything else.

The mortgage. Your mortgage is likely the largest recurring expense — and the one most people focus on when planning for homeownership. It includes:

• Principal — the amount you borrow from the lender.
• Interest — the cost of borrowing, as determined by your interest rate.

Other factors like the loan term (e.g., 15 or 30 years) and the need for PMI also impact your monthly payment.

Everything else. While most people focus on the mortgage, other costs can add up quickly and catch you off guard if you’re not prepared:

• Property taxes. These are determined by your local government and vary widely depending on where you live. Keep in mind that the last owner’s taxes may not reflect what you’ll pay, as taxes are often reassessed after the sale.
• Homeowners insurance. This is required by most lenders and protects your home against risks including fire, theft or natural disasters (though typically not flooding). The cost depends on factors such as your location, home value and coverage level. If you’re buying in a high-risk area prone to hurricanes, floods or wildfires, insurance costs can be significantly higher.
• Maintenance and repairs. From routine upkeep, like lawn care, pest control and HVAC servicing, to unexpected repairs, such as a leaky roof, home maintenance expenses can sneak up on you. Experts recommend setting aside 1% to 3% of your home’s value annually for upkeep.
• Electricity, water, gas and internet services are essential costs that vary based on your usage and location.

Weigh the Costs and Benefits

Homeownership has many perks, like building equity and enjoying the freedom to make your space your own. But, it’s important to weigh these benefits against the costs. For some, renting may be a better option depending on lifestyle, financial goals and local housing market conditions. If you need help deciding if the time is right to buy, speak with a Financial Professional who can look at your individual circumstances and advise on whether it’s time to buy a home sweet home of your own.

Source

• https://www.bankrate.com/real-estate/costs-of-buying-a-home/#upfront-costs

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