Estimating financial responsibilities when buying your first home is a daunting task. No, it’s not about finding the best price in the market, getting a mortgage loan and aim to close the deal. It’s more complicated than that. You shouldn’t think of the face value on papers alone, since you must make sure of being ready for long term financial responsibilities.
And you don’t want to be caught off-guard by such big expenses. Hence, it’s wise to know these tips to help you.
How to prepare yourself financially before finding First Home to buy
1. Sum up your Total Household Income
Begin by computing your overall household income. This includes your salary, and profit you earn from business if there’s any. If you do regular sideline job such as mowing lawns, include it as well.
Moreover, be sure such profit is stable enough. If you don’t think you’d last long in your current job, be sure it wouldn’t be hard for you to find similar paying job. The idea is to remain afloat amid the financial responsibilities of buying and owning a home.
2. Consider the Ideal Home Price you can afford
After calculating your total household income, consider the ideal price you must aim for in buying a home. Ideally, multiply your annual household income by three, and be sure not to buy a home which price is bigger than the result. Of course, it’s best if you’d buy one with lower value than that.
3. Weigh Debt to Income Ratio
In buying your first home, be sure to carefully weigh the debt to income ratio. In a nutshell, this is about the ideal expenses you must allocate for all debts you handle. Experts say you must allocate only 36% of your household income to debts. And that includes your monthly payment for mortgage loan.
4. Prepare for Down Payment
Next, be sure you have around enough down payments to pay upon purchasing a home. Ideally, pay around 20% down payment to make the mortgage smaller. This means you’d worry about mortgage in a shorter time span, while lenders potentially pulling down your interest as well. But if you can’t go for 20%, be sure not to go lower than 10%.
5. Prepare for Transaction Expenses
Aside from the down payment, you need to prepare for other expenses throughout the buying transaction too. Think of hiring a reliable home inspector, then paying for closing fees. Right after the transaction closes, you must spend quite a large amount for moving in.
6. Aim for Mortgage Pre-Approval
This is probably one of the best steps to take before buying a home. Be sure to submit your mortgage application and get yourself approved—even before you begin shopping for a property. First, it makes you financially ready in buying a property. Second, sellers would take you more seriously since you already have a good back-up which guarantees their profit.
7. Consider Home owning Responsibilities
Lastly, be sure you’re ready for the upkeeps of a home. Larger lawn means more area to take care of, and larger space means bigger energy demand. Weigh such utility and maintenance factors to accurately gauge your expenses while owning it.
Remember these tips in buying your first home to make yourself financially ready. This is also finding a home which suits your needs and financial capabilities.
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