Welcome back! If you are a first timer, Hi! Are you home shopping? Dreaming of home shopping? Stalking homes on Zillow? We were too. Do know if you are ready financially?
We have been preparing to buy a home for a LONG time. Read about why it was such a lengthy adventure here. However, no matter how long you have been preparing to buy your first home or next home, there are a few things you want to consider. The top questions are, “how much home can I afford?” and “How much do I need to save?” Be careful not to forget considering the expenses that come after you close on your exciting new home, changes in monthly home bills, and potential emergencies. Not to mention, there is fun part of furnishing the new home! $$$$$$$ (I’m not talking about all of these today though, so you will just have to come on back again soon to read about the rest!)
News flash, homes are expensive!! Ok, maybe not a news headliner, but it does seem some people forget. It takes a lot of money to buy the home and a lot to keep it, not to mention the unexpected costs you may encounter such as needing a new water heater, roof, or need to meet your deductible to do repairs after a storm. If you rush into a home without preparing financially, you may find yourself overloaded with stress and wanting out. We hope to avoid those feelings with a lot of preparation and patience. Depending on your current financial situation, this may be easy or, most likely, will take some serious changes in your budget and time to achieve.
So, these are the goals, the dreams. While you may not be patient enough to wait until all of these goals are met, and I understand, these 5 goals should be on your radar. I have linked through to some helpful articles to give you more information.
1 – Be Debt Free
Yes. Really. Or, as close as you can possibly get. The more flexibility you have in your income, the more confident you will be when you sign that line. At the very least, be working through a plan to have it paid off as quickly as you can. Credit cards and loans are not a great way to spend the money you work so hard on. Neither are car payments if you can avoid it. You don’t want to live in the statistic of this article by CNBC. Make a few changes in your spending and enjoy the flexibility of being debt free!
For most people, a debt elimination plan works amazingly. Two amazing tools are Primerica‘s great Debt Stacking plan they will put together for you, for FREE and Dave Ramsey’s similar debt snowball plan. Consolidation loans can be a valid option for some, depending on the amount of the debt you carry. I am not linking to any here today, because I think you should meet with a financial coach before taking on any new loans. You can receive a free Financial Needs Analysis with a local Primerica Representative near you. (This is not sponsored. I no longer have an affiliation with Primerica, but I love their concepts and products because I worked with them for 10 years.)
If you carry debt when you apply for a loan, you need to keep in mind your Debt to Income Ratio and be careful not to overextend yourself.
2 – Set aside 2-3 months of expenses
6 months if your are really awesome. Want to feel confident on the day your close on your new home? Then don’t skip this goal. We all know things can change quickly. Job security isn’t really a thing. So many unknowns can change your financial situation in a day. Take the time to save and be prepared for the what ifs and you will feel a lot better about signing that dotted line (105 times) at closing. Here are some tips from Vanguard about why need this safety net.
3 – Home Emergency Fund
This is for the crazy things that happen when you own a home. Storms that ruin the roof. Electrical issues the home inspector didn’t catch. Appliances that break. This list goes on and on, but I will stop now to avoid scaring you away from home ownership forever. Have enough funds in an account to at least cover your home insurance deductible (average is $500 or $1000). Obviously, the more you have the less stress you will feel.
Set this money aside separate from your checking. Maybe a separate bank. The more out of site, out of mind the funds are, the less likely you will dip into them for other things like your vacation or the chair you are dying to have for the new sitting area in your bedroom. We love low yield mutual funds or money market accounts for this. Something very liquid, separate from our bank, and it may take a couple days to receive. Knowing I cannot have the money today helps to make sure I’m not spending it on a whim. I use these types of accounts for both our Home Emergency Fund and 2-3 Month Expenses Emergency Fund. If you want more info on this or a recommendation, comment or email me.
4 – Down Payment
Let’s go ahead and include closing costs here too. Depending on the lender and the type of loan you choose, you may or may not have to come to the closing table with a nice size check. Typically, the goal is 20% or more as a down payment. cha-ching! Sometimes, you can work with as low as 3.5% or no cash down at all, with an additional penalty of PMI (private mortgage insurance). (I have recently heard some loan programs advertised with no PMI requirement. No opinion on that here since I have not done my own research yet. My experiences says to be cautious of financial products that sounds too good to be true.)
Your decision to pay more money up front or to roll the costs into the loan could have significant implications on your payments. Not only on your monthly payment, but also how much you pay over the life of the loan. Remember to ask a lot of questions! Don’t be embarrassed if you don’t recognize the terms the lender is using. Ask! Ask for it in writing. Ask until you feel confident in the process, where you stand, and what happens on closing day and after.
5 – Money for Furnishing
Yay!! You have met the other goals and are ready to seriously start the house hunt process. Do you have money to furnish your home? If the answer is “no,” this does not quite mean you aren’t ready to buy the house. It may mean that you need to consider where you will sit, eat, and lay until you have the money to buy a couch, table and bed. This is the fun fluff. Not pertinent to really buying the house, but something to consider when you are listing money needed to afford a home.
This one is big for me. In our 10 years of marriage, we have bought only a few pieces of furniture. Most of our current furniture is old and hand-me-down. It won’t be making the move with us when we leave this joint. Want some free stuff? So, I need/want money for the new stuff. I don’t plan to drop 30k at once filling my house with all the beautiful things I want. aaahhhhh, just dreaming of that for a moment… Reality though, looks more like a few thousand dollars to get some immediate basics such as a couch, new mattress and bed for the master, and a few other items we may want when we first move in. After that, we will make room in the budget for furniture/decor and get a little each month.
I hope you find this info helpful. Those are the goals we have worked toward since Casey started his new career a couple years ago. They were not small goals for us either. Sometimes it sure felt like we would never get here. We have not quite met 100% on every goal to date. However, I feel confident enough in where we stand with each step to start the looking process.
Our income is crazy with it being 100% commission based (which I love) and that can create a lot of stress if we don’t take the steps to be prepared. I also remember many families, who weren’t living on a commission based income, that bought too soon and emptied their accounts to do so. If that would be you, I would say that you may not be ready just yet.
If you find yourself anxious to move forward to the next home, or the next chapter in your life. Make a list. Create goals. It’s amazing how much it helps you focus on where you are, and what to do to make it happen. Some goals take years to achieve. If you rush it, you may find yourself in a world of stress and unprepared when the opportunity actually comes. Be patient people. Be prepared.
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