If buying a home is one of your goals for 2016, we can get you started on the right path. Some people think that having a place to call your own is a dream, not a goal. It’s true that buying a home is probably the biggest purchase you’ll ever make in your life, and big purchases cab mean big debt. However, that doesn’t mean your dream can’t be achieved.
If you want to buy a home this year, follow these five steps to help you get started on your goal:
Step 1: Find out how much you need to save for the down payment
A down payment is the amount of money you have saved to put towards the purchase of your home combined with the mortgage loan from a bank. A larger down payment will lower your monthly mortgage payments.
According to Bank of America, homeowners should typically have a down payment of at least 20 percent of the purchase price. Although it’s not uncommon for homeowners to put down as low as five percent.
Step 2: Calculate how much you can afford each month
The next question you should ask before making an offer is can I afford to buy this home? Use this bi-weekly mortgage calculator to help determine what your mortgage payments will be based on current interest rates and the loan amount.
If the number is something close to what you are paying now in rent or a number that fits comfortably into your monthly budget, then you may be ready to buy your first home this year.
Step 3: Visit your bank and get a pre-approval
When applying for a mortgage loan with your bank (or other lender) they take the purchase price of the home and subtract the amount of the down payment to determine the amount of loan you need. The larger the down payment, the smaller the amount of the loan. The smaller the loan, the less interest you’ll be charged. It’s that simple.
Banks take into consideration a number of factors when approving (or declining) a mortgage application. These factors include: the amount of the down payment, an ability to make payments, current outstanding debts, your credit score, past payment history and job stability -- just to name a few.
Step 4: Shop around to find your dream home
Buying a home is a big commitment. Take your time to find the perfect fit -- after all you will be living there with your family for the next several years. Searching MLS.com and hiring a real estate agent are great ways to find a home in your price range with all the amenities you want.
Step 5: Don’t forget about all the extra costs
Saving for the down payment and the ongoing monthly loan payment obligations are only part of the expenses that come with buying a home. You also need to save money for the closing costs (although sometimes the seller will cover a portion of them), moving expenses, property taxes, and regular maintenance costs such as lawn upkeep, utilities and snow removal. Saving an extra few thousand dollars will be very helpful when moving in and getting set up the first few months.
If you’re thinking of buying a home in 2016 contact one of our housing counselors. They’ll help you get started.
Image source: Pixabay
Consumer Education Services, Inc. empowers people to overcome their financial challenges and lead financially-healthy lives.
CESI is NOT A LOAN COMPANY