Buying a home is one of the biggest purchases one will make in life, and it serves as a fantastic way to boost overall net worth. While taking on a mortgage may feel like adding a lot of debt to your portfolio, buying a home is considered a “good debt”—a debt that will help you build wealth throughout your life.
Because buying a home is such a big purchase, many people are overwhelmed as they begin the process—but we’re here to help! Read on to get our top tips for making your investment in a home a seamless process.
4 Tips for Buying a Home
- Decide On Your Down Payment
Down payments are one of the most intimidating parts of the home buying process because they are paid in cash—meaning a solid savings plan is key. While 20% down payments used to be the norm, in pricey markets, that isn’t always feasible. Instead, use a down payment calculator online to see what works for you. Putting a large amount down will lead to a lower monthly mortgage payment and can make your offer stand out to sellers, but it’s important to balance that with keeping an adequate amount of savings on hand.
- Determine How Much You Can Afford
Now that you have your liquid cash investment figured out, you can determine what your monthly payment will be for homes of various prices, allowing you to narrow down your all-in budget for a home. The general rule is that your payment shouldn’t exceed 15% of your monthly gross income. Mortgages are a long-term commitment, so it’s better to be comfortable with the investment from the beginning than to face 20 or 30 years of high payments.
- Get Your Debt-to-Income Ratio Low
When lenders determine your qualification for a mortgage, they are looking at all the details of your finances, including your debt-to-income ratio. Ideally, you want your debt-to-income ratio <35%, so if you can pay off small debts entirely while still hitting your savings goals, now would be a great time to do it.
- Don’t Forget Closing Costs
Closing costs, which cover your insurance, home inspections, and title, are often forgotten in the hustle and bustle of the buying process. They’ll generally run between 2 and 5% of your mortgage amount, which can quickly add up if you’re buying a high-dollar home. Be sure you factor this into your overall investment when you budget for how much cash you’ll put in.
Ready to get your finances in order to buy a home? We would love to help! We can help you create a financial plan that allows you to save for a down payment, invest in your future, and enjoy your lifestyle. Contact us today to learn more.