4 Financial Steps Everyone Should Take When Buying a Home
You’ve decided to buy a house and you’ve caught the homeownership bug bad.
You’ve been picking out furniture and looking at Pinterest almost as much as you’ve been browsing listings. You already know exactly who’s going to be on the list for your housewarming party. And you’re on a first-name basis with every moving company within a 10-mile radius of your house.
Even with all of this excitement, however, there’s no denying the fact that the words “Buying a house is a major financial commitment.” are the understatement of the year. So how can you prepare yourself financially for homeownership? Are there any steps you can take to ensure that becoming a homeowner is as easy financially as putting on a new pair of shoes?
Here are four financial moves that homebuyers may want to make before purchasing a home.
Financial Move #1: Get Your Mortgage Pre Approved
It’s pretty clear at this point that a mortgage pre approval can only help your house hunt.
Think about it.
When a house is listed and the seller is fielding multiple offers, how much confidence would you expect the words “We’re just waiting to hear back from the bank.” to give the seller?
But for all the press that mortgage pre approvals get as house hunt accelerants, they also help a lot with making the financial transition into homeownership. With the approval in hand, you know your budget, you can roughly estimate your expected interest rate, and you can start planning your finances accordingly.
In many ways, the sooner you can get a preapproval, the easier everything else becomes.
Financial Move #2: Save as Much Money as You Can
There’s a key aspect of homeownership that it’s important to be aware of:
The longer you own the house, the more costs you’ll be expected to cover.
In any given year, you may have to fix, upgrade, or replace a major appliance. And that’s on top of your monthly insurance costs and annual property taxes.
Having money on hand can only help.
According to Value Penguin, the median bank account balance in the U.S. is $5,300. While you don’t necessarily need a Scrooge McDuck-style pool of money to swim in, having funds to fall back on can take a lot of that “I was not expecting this!” shock off.
Financial Move #3: Know What You Can Afford
If you filter your local real estate listing by “Most Expensive”, it’s not unusual to find houses that would fit right in on Lifestyles of the Rich and Famous. We’re talking high ceilings, living rooms with fireplaces, stunning open-concept kitchens, and backyards with flawless landscaping.
But even if these stunning homes are within your means at the moment, being house rich and cash poor can have long-term financial consequences.
When all of your money is going into your house, you can easily end up living a life where you’re forced to pass on vacations, you’re struggling to find money to retire, or you’re constantly in a place where you don’t have enough financial stability to change jobs or handle sudden medical expenses.
And while most people assume that their career has nowhere to go but up, you never know what can happen. Buying a home that you can comfortably afford, or a home that’s otherwise below your means, can give you more financial wiggle room for the next 20 to 25 years or more.
Financial Move #4: Work on Your Credit Score
Most people already know that credit scores are an important metric for lenders. But alongside how it can answer many of those “Will the bank even entertain my application?” questions, a strong credit score can also make your future home more affordable to live in.
Because your credit score can and often will affect your offered mortgage rate. And in the United States and Canada, a solid credit score makes it possible to save money on interest rates.
And when you’re expected to be making payments for the next 20 to 25 years, every dollar that you don’t have to spend every month can add up to a substantial amount of money when all is said and done.
Here’s How to Know if You Are Financially Ready to Be a Homeowner
You’ve heard the saying that success is a marathon and not a sprint, right? Well, buying a house has the dual distinction of being both a marathon and a sprint.
When you’re on solid financial footing ahead of your house hunt, you have more options. And along with having an A1 homebuying experience, that comfortable financial position can make it easy for you to own a home over the long haul.
What other steps do you see yourself taking to prepare for becoming a homeowner?