Shopping for homes can be fun, but be careful not to fall in love with the “big dream house” just yet. Once your mind is set, it will be tempting to find any way possible to buy it, despite it being “just a hair” out of your price range—(it has vaulted ceilings, for heaven’s sake!). People tend to push the boundaries of what they can afford when it comes to houses, and often miss the first step, which is to evaluate your budget. It’s of utmost importance that a mortgage payment fit within your household budget. Consider worst-case scenarios. Be conservative in your estimates. YOU know much better than any lender or real estate agent how much you can actually afford. Just because the bank says they’ll lend you $200,000 doesn’t mean you should take them up on the whole amount. You want your finances to be comfortable and secure—not stretched to breaking point. You might even want to try “practicing” a mortgage payment for a few months, and putting any extra savings in your down payment fund.
Speaking of your down payment fund, you have one, correct? It exists? And it’s not the money you’ve designated as your emergency savings? Because, even when you’re in a home--particularly when you’re in a home--emergencies still happen. When it comes to down payments, the more the better—but shoot for at least 5 percent of the purchase price.
Now, let’s say you’re ready to talk to some lenders. What are they going to care about when deciding to lend you money? They’ll most likely be focusing on your income, your down payment, and your credit score. Credit scoring is an entire topic unto itself, but for starters, find out where you’re at. Make sure you regularly check your free report at annualcreditreport.com (NOT freecreditreport.com). If your score is
over 760, you’re in great shape to get some of the best interest rates. If it’s lower, expect to pay more money in interest to the bank, or possibly even get turned down for a loan. Lenders will charge you more to borrow their money if you have a lower credit rating. Just think, you wouldn’t want to lend money to that shady cousin who doesn’t have a job and hasn’t ever paid you back in the past, right?
Another thing to keep in mind: don’t forget closing costs. Ah, closing costs. Those nasty fees we always forget about in our budget calculations that will cost you around 3% of the loan value. If you’re buying an existing home, the seller will sometimes pay these costs, but when you’re adding everything up, don’t forget those extra few thousand dollars. Every lender will charge closing costs, but they don’t all charge the same, so shop around. When researching lenders, try to compare at least three—not all lenders are created equal. When you’re going to fork over this kind of money, it makes sense to look for the best deal.
Lastly, don’t expect all your troubles to evaporate once you’re in the home. Your old landlord probably won’t be up for fixing your broken toilet anymore. Do you own a lawn mower? Are you used to paying for your lawn to be watered? How do you feel about shoveling your own driveway? Do you have money in reserve to fix the broken water heater? There are a ton of benefits to owning a home, but it’s well worth it to consider every aspect of such an important purchase.
Want to learn more essentials on this topic? You’re in luck. The USU Family Life Center is a HUD-approved, non-profit agency that offers a free homeownership workshop every month, as well as one-on-one counseling to go over your specific situation. Purchasing a home can be complicated and stressful, but it doesn’t have to be. Just call (435) 797-7224 to get moving!
