5 Quick Home Buying Tips

Nov 4, 2016 by

5 Quick Home Buying Tips

Are you ready to buy a home?

 

Buying a home is a tremendous life milestone. We all have our own vision of our dream house and neighborhood, but before we can make it a reality we need to make sure we are ready.
Although buying a house is something to be excited about, you want to ensure you are buying a house for the correct reasons.  An article I recently read discusses a number of personal checks you go through when you decide its time to purchase a house.
The article I read was written by Emmie Martin, a finance writer, and posted on Business Insider. In her article, Martin discusses 11 signs that you are not ready to purchase a home.  Of these, I believe 5 are especially critical.

Poor Credit

If you have poor credit, when you apply for a loan to purchase a house, you will have a higher interest rate than if you had good credit.  According to Experian, good credit is considered a score between 850 – 670, and poor credit is considered a score 579 and below.  Even if your interest rate only increases by a .5%, over a 30 year mortgage this could be thousands of extra dollars.

House as an Investment

If you are considering buying a home because you think it’s a good investment, you may not be ready to purchase a home.  You may here your friends say that renting is throwing money away, so you should buy instead.  This is incorrect.  According to Zillow, the average value of a house increases about 3% a year.  Compared to the stock market that returns approximately 7%, a house is a poor investment.

Down Payment

It’s critical to have at least 10% saved up for your down payment.  Ideally, you would like to have 20% saved.  If you don’t have enough cash to save 20%, you will need to pay Private Mortage Insurance (PMI) on top of your mortgage payments.  This is essentially a required insurance that protects lenders from risky buyers that do not have enough to afford 20% for a down payment.

Savings

Your housing costs should never exceed 1/3 of you take home pay. Of course in the extremely expensive parts of the country this won’t be possible, but it’s still a good guideline that works for a large portion of us.  If you house payment is more than 1/3 of your take home pay, your are going to have difficulty paying other bills and reaching any other savings goals you may have.

Additional Housing costs

If you have not considered all the extra costs associated with owning a home, maybe you are not ready. On top of the mortgage payment, there is insurance, property taxes, waste management fees, and not to mention all the fixing up and yard work you will have.

Financial Press: Action Items

 

This Business Insider article gives great insight into what you should consider before making the decision of buying a home. When you get to the stage of home buying, make sure you keep this tips in mind.
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1 Comment

  1. Awesome post! Definitely some great tips and advice buying home product.It’s also great to start a savings account for emergencies or long term goals! thanks for sharing this amazing article.
    mustafiz@resently posted…what is the best way to save money

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