This August I purchased my first home. As a new homeowner, I have quickly learned that gone are the days of calling the landlord when your light bulbs burn out. That responsibility is now mine (along with the water in the crawlspace, an ever-growing lawn and much more). While I’ve been told that the home projects will never end, let me pass along some tips that may be helpful in making the buying process a little easier.
- Take stock of your financial “real estate.” Take an honest look with your financial planner at your current financial situation. How much home can you afford? When you apply for a loan, the lender will take into account your credit profile, income, assets, job history and debt-to-income ratio. They won’t consider other financial goals such as child-rearing expenses, retirement, vacations and hobbies. In many cases, the amount you are approved for is higher than what you may feel comfortable borrowing.1 Your financial planner will help you be prepared so you don’t fall into the trap of finding your perfect home – and then realizing you can’t afford it.
- Check your credit and repair if needed.2 Tried and true strategies for increasing credit score include:
- Pay off any collections as soon as possible
- Bring past-due accounts up to date
- Pay all bills on time
- Reduce credit card debt to 25% or less of your credit line on each card
- Don’t open new lines of credit
- Don’t close any credit card accounts.
Note: If your credit is frozen, you must unfreeze it to purchase your home.
- Make a list of additional expenses. As a homeowner, I now budget for a few more expenses that carefree apartment living did not include. Research and make a list, which may include: property taxes, homeowner’s insurance, homeowner’s association fees, renovations, pest control and landscaping. You should also budget for maintenance and repairs on your home, to at least 1% of your home’s value. 1
- Build a savings strategy. I set up a special investment account that was designated for my home purchase goal. Portions of each paycheck were automatically added to the account and invested based on my time horizon and risk tolerance. Another idea is to start saving the difference between your rent and anticipated housing payment (if higher). This will help you prepare for how to budget once you take on a mortgage.
- Don’t be afraid to ask for help. As a first-time homebuyer, I sought the guidance of a realtor. My Aunt Lisa and Uncle Bobby, The Meiners Team, have been in the business for many years and were an excellent resource. After discussing goals and ideas for my new home, they drove me around to many different neighborhoods and helped me find the perfect fit. They negotiated a great deal for me and took most of the stress out of the home buying process.
- Find the right lender. There are many banks and lending institutions out there. If you are wondering where to start, we can guide you to lenders who do an excellent job and will give you a competitive rate. In the current real estate market, I found that it is essential to get pre-approved before starting your search. My lender walked me through a breakdown of estimated monthly expenses which helped me to narrow down a range of homes I could afford. Remember just because you are approved for a loan doesn’t mean you want to be stuck with those monthly payments.
- Protect your new purchase. When purchasing my home I shopped around at different insurance agencies and found the best fit for my needs. If you “bundle” your home and car insurance, you will likely receive a discount on your monthly premium.
With the checklist above, you have an excellent road map to home ownership. Make sure you involve your financial planner as you begin your search for your new home. To schedule an appointment, contact Financial Plans & Strategies at 317-882-7675.