A lot of my readers and friends reached out with more questions from my previous blog of Steps to Buying A Home (https://loveahmongus.com/steps-to-buying-a-home/) so I am writing this to help people prepare financially for their home purchase.
It probably seems like a never ending list of things to check off before you purchase a home but I’m here to help with the financial aspect of it and hope that some of this information will be useful to you.
1. Check Your Finances
Isn’t this the most obvious? Sometimes not. Check your bank account, check your spending, can you afford another payment added onto everything that you already have going on? This is a good time to check your expenses and see if a home purchase is a good time for you. I’ve written a blog with an excel sheet that can help with your spending, for free! (https://loveahmongus.com/what-does-my-expense-sheet-look-like/)
2. How Much Should I Put Down?
My answer will always be 20% or more. Why? Because if you don’t, you’ll be paying $300-$500 more a month in PMI which stands for private mortgage insurance. This does absolutely nothing for you but goes towards insurance to the lender in case you default on your loan. On top of that, you’ll be paying this until you reach the 20%. Did you know that real estate investors always put 20% down on all their investment homes because they don’t like throwing money away so you shouldn’t either because your home is your investment.
3. 30 Year Mortgage Is Okay But 15 Is Better
My husband and I did our mortgage for a 30 year term because we were unsure what would happen in the next 15 years in case we lost our jobs and didn’t want to risk it. A year later, we refinanced for a 15 year term because we don’t know what’s going to happen in the next 15 years either and I actually left my job to become a Stay At Home Mom. Not only did we get a better interest rate but we will be debt free in 15 years instead of 30! Can’t really beat that!
4. Make Sure Everyone Is On The Same Page
This really should be #1 but I feel like when people are looking for a home, most spouses and family are already ready together. This just doesn’t apply financially but also mentally and physically. Make sure the home is a good fit for everyone and get their input when looking at homes together. You want a home for everyone and not just you. Sometimes everyone agrees and sometimes it’s a little more difficult but let everything be done within reason. A green or orange wall can always be painted over or a yellow fireplace can always be painted. The same goes for kitchens, bathrooms, and bedrooms. You also don’t want to overwork yourself or others to death feeling like you are flipping a home. Just some TLC to a home is expected but not flipping a house — unless that’s the purpose of your purchase.
With all that said, don’t let this discourage you from purchasing a home. Only you know when the right time is to purchase a home whether you have 1% or 20% down. These are just steps to encourage you to save money in the long run. I wish the best for you in your home purchase!
Sincerely,
Melissa Lee