Owning a home is a great way for anyone to build long-term wealth. Over time, those that own properties will enjoy value appreciation, reduction of the outstanding loan balance through regular mortgage payments and tax incentives. While there are a lot of benefits that come with being a property owner, it does require a significant investment. When you are going to invest in a new home, five financial tips should be followed to ensure you are prepared and making a wise decision.
Know and Follow a Budget
When you are going to purchase a home, you need to make sure that you know what your budget is. A mistake that some people make is spending too much on a home. In some cases, a bank will be willing to lend more money than someone should be comfortable with taking out. In general, you should try to keep your total monthly housing bill less than 30% of your gross monthly income. Your total housing costs should include the mortgage payment, home insurance, private mortgage insurance, and property taxes. Keeping this total payment at a reasonable level will provide more financial flexibility and will result in less stress going forward.
Have a Downpayment for the Purchase
One of the most important tips to follow when you are going to buy a property is to have a downpayment for the purchase. Normally, when you are going to purchase a home, you will need to have a downpayment saved up for the purchase. For those that want to get a conventional mortgage and avoid paying a higher interest rate or private mortgage insurance, you will need to have at least 20 percent of the purchase price to put down. However, there are loan programs available to first-time homebuyers that will allow you to buy a home with as little as 3.5 percent down. It is important to speak with a mortgage broker in Essex or wherever you plan on buying your home to learn what you need to have in place to get a mortgage.
Those that choose to purchase a home will be making a major commitment that is difficult to get out of. This can be problematic if you lose a job or suffer a financial setback that makes it difficult to make your monthly payments. At the same time, you are bound to have repair needs with your home that will require a big payment to fix. Due to this, you need to make sure that you are financially capable of managing these setbacks. Ideally, you should have a personal emergency reserve fund that sits in a bank account and has at least six months’ worth of living expenses in it. Additionally, you should do your best to pay off all other debts before closing on the purchase.
Manage Your Credit
Mortgage interest rates today are incredibly low, which makes buying a home a more affordable option for anyone. However, in order to qualify for these historically low-interest rates, you will need to have a respectable credit score. Banks rely on credit scores as it provides insight into how well you have managed your credit in the past. At least a few months before applying for a mortgage, you should pull your credit report and score. If your report reflects inaccurate information, it will give time to have it removed. If you have a low score, you may be able to find ways to improve it quickly. This can be done by having inaccurate negative information removed or paying down unsecured debts.
Think Long Term
Buying a home should be considered a long-term investment. If you do not think you will live there for at least five years, you may be better renting and waiting to buy. Buying and selling a home comes with a lot of closing costs, which will add up significantly over the years if you buy and sell homes routinely.
Those that choose to invest in a property could be making a great long-term financial decision and investment. However, buying a home is always a big commitment and investment that needs to be taken seriously. There are five important financial tips to follow that can help to ensure that you do make a wise decision overall.
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