If you have an interest in buying a home, it is essential that you learn a few financial planning strategies that will aid in achieving success in the endeavor. The purchase of a home is considered to be the largest financial investment of a lifetime. As a result of this fact, most individuals go into the process with a mixture of both fear and excitement. If you know that you are financially prepared to take on the responsibility of purchasing a home, you will enter into the decision with a high level of confidence and exhilaration. It takes more than just having a down payment. You must also ensure that you have the financial stability to care for and maintain the structure, and to obtain the proper insurance to protect and cover the structure in the event that you are impacted by unforeseen circumstances. In this financial planning guide, you will be guided through how to determine if you are ready for home ownership and how to properly plan your purchase.
Determining Your Readiness to Become a Home Owner
The first step to proper financial planning when buying a home is to determine if you are truly ready to become a home owner. In order to make this determination, you should consider the following points:
- Credit History – The most basic consideration when it comes to purchasing a home is your credit history. The lenders that specialize in approving loans for purchasing a home will evaluate your ability to engage in the repayment of the loan by analyzing your credit history. If your credit history reflects poor credit and/or a score associated with your credit that is considered to be low, they may consider you a high risk. As a result, your home loan may be denied, or, you may be charged a very high interest rate. If you are financial planning for this type of purchase, it is considered ideal to ensure that your credit is positive. You may succeed in this by ensuring that you pay all of your bills by their due date, that you pay off any credit cards or loans that you have out successfully, that you limit the amount of credit that you apply for, and that you ensure that you read all applications that are associated with your credit completely before providing a signature.
- Employment History – The next factor that should be considered to determine if you are ready to become a home owner is your employment history. It is absolutely imperative that your job history is what lenders would refer to as, “Steady”. According to most in the financial planning and lending industry, a steady employment history is one that reflects at least two continuous years of employment. If you are planning on purchasing a home, it is critical to ensure that you meet this criterion.
- Payment Affordability – The third factor that will help you determine if you are prepared for home ownership is whether or not you are able to afford the mortgage payments that will come with the purchase. You will need to calculate the amount of money that you earn, as well as any outstanding debt that you have. Additionally, you should also determine your monthly expenses. You should then take that amount and see if it is higher than your mortgage will be. Be sure that you have even more after that so that you may make certain that you are able to afford the taxes and insurance on your new home.
- Down Payment – The next and final consideration that should be made is to determine how much of a down payment that you have. Of course, the higher the down payment, the smaller the monthly payments. Your down payment should also include the amount that you will need for closing costs, loan initiation fees, and any points that your housing lender elects to impose on you.
Finding the Right Mortgage
Once you have determined that you meet all the criteria for becoming a home owner, you should start the step of finding the right mortgage for your needs. When it comes to financial planning for buying a home, this is, perhaps, the most important step. A mortgage is a type of loan that is considered to be long-term, that is, it must be repaid over a period of fifteen to thirty years. The home and the land associated with the home are often considered to be the collateral for the loan. In a mortgage, there are four basic costs. These are the loan balance or principal, the interest associated with the balance, the taxes on the property, and the insurance for the property. When engaging in financial planning for home purchase, you should ensure the following:
- It is imperative that you pick a mortgage that does not include a prepayment penalty.
- You should consider opting for a loan that is considered to be “Fixed Rate”, so that your monthly payments remain the same over the term of the loan.
- You should conduct research to determine if you qualify for a special type of mortgage, such as a first-time home buyer or HUD.
Financial planning for buying a home is a challenging endeavor, but, if you are equipped with the knowledge that it takes, you will discover that it may be done with ease. If not, you may want to consider enlisting the assistance of a financial planning company or specialist to assist with the task. These companies provide you with support and have the ability to directly connect you with financial leaders that specialize in financial planning in an ethical and objective manner. Whether you take these steps on your own or with the assistance of a professional, you are sure to learn from the process and acquire the home that you have always dreamed of having.