October is Financial Planning Month for Homebuyers
Buying a new home, especially if it’s your first home, can be exciting, but it can also be stressful. Need some help? You’ll find that the home-buying process is simpler and easier to understand if you follow some tips for buying a home that can help you to strategize the process of shopping for a mortgage. In fact, many of the terms and scenarios you’ll encounter in your home buying financial planning process are similar to those you’ll find when you’re making any other major purchase, such as a car, and a lot of the same lessons can be applied.
What’s the difference? When you’re buying a home, you’re planning for more than just the expense of the mortgage itself. Because a home is such a big purchase, you’ll be strategizing most aspects of your financial picture while also dealing with interest rates, credit scores, debt-to-income ratios, and closing costs. While all of this can feel a little overwhelming at times, however, it’s nothing to be scared of if you follow these simple tips for buying a home:
Home Buying Financial Planning
1. Estimate your costs. A new home is probably the single biggest purchase you will ever make. Most of us don’t just buy a home with cash, so the expense is spread out over time. The two biggest up-front costs associated with buying a home are usually the down payment and the closing costs. The amount of your down payment can vary, ranging from as little as 3% to as much as 20% or more of the total price of the home, depending on your situation and the type of mortgage you choose. Closing costs, meanwhile, are the fees and expenses that are associated with the paperwork that goes into actually closing on a house. Closing costs are typically between 2% and 5% of the amount of your mortgage, meaning that if you were financing $400,000, your closing costs might be around $15,000.
2. Check your credit score. Your credit score plays a major role in your ability to borrow money for a mortgage, and you don’t want any unpleasant surprises. That’s why it’s a good idea to review your credit reports from all three of the major reporting agencies (Equifax, Experian, and TransUnion) and look for anything that doesn’t seem right to you. It shouldn’t cost you anything but time, either, as you are eligible for a free copy of your credit report once every 12 months.
3. Decide how much home you can afford. A number of handy online mortgage calculators can help you determine how much mortgage debt you can afford to take on based on your income, your debt-to-income ratio, and other factors. Most banks and other lending institutions have these calculators on their websites, and some home sellers might even provide them. As far as a good rule of thumb, financial advisors tend to recommend that no more than around 28% of your monthly income go to housing, which is to say that you can probably afford a mortgage payment that’s up to around 28% of what you make each month. With the help of a mortgage calculator, you can adjust factors like loan terms, down payments, and so on to get an idea of how much money you want to borrow. Then it’s time to get pre-approved and start shopping for your dream home!
4. Watch your spending! This is a great tip for buying a home—or for making any other big purchase—that often goes unmentioned. Watching your spending will help you save up money to pay for the costs associated with buying a new home, moving, and so on, but here’s another factor to consider: Because your credit score and debt-to-income ratio are being scrutinized as part of the home buying financial planning process, it’s also a good idea to put off any major purchases until after you’ve closed on the new place. This is especially true of any purchase that could lead to an inquiry on your credit report, which might even cause your mortgage to be delayed or denied.
5. Choose where you see yourself living. They say that business is all about location, location, location, and that’s maybe even more true when you’re buying a home for yourself and your family. Sure, the house is important, but the community is just as key. Do you want to live in a community with friendly neighbors and great amenities for residents? Do you want to be near enough to a major metro area for work, yet far enough outside the city to escape the hustle and bustle? Do you want to live in someplace with a low cost of living? Do you want to be near good schools for the kids? All these questions and more will inform your decision on where to start looking for a house.
6. Get preapproved. This is a great tip that will have you shopping like a boss! Before you even start looking at homes, get preapproved for a mortgage in the amount you’re looking to spend, ideally from more than one lender. You can even shop around to find the lowest rates and fees. This not only speeds up the whole process, it lets you know what you’re capable of borrowing beforehand, which can help you to narrow the field when you’re looking for a new home.
7. Make the most of open-house events! Sure, you’ll have plenty of opportunities to take virtual tours of model homes from the comfort of your own sofa, but there’s something to be said for physically walking through the space that you’ll occupy, discovering what it really feels like around you, and catching little details that pictures and video would never convey. You can open the cabinets, turn on the lights, walk through the doors and up the stairs. Plus, touring model homes allows you to get a feel for what each builder puts into their houses, so you’ll have a better idea of what builders interest you. Right now at Candela, we’re holding a Fall Inventory Event where you can tour nine brand-new model homes from our three premier new home builders: Coventry Homes, Perry Homes, and Westin Homes. Already know what you’re looking for in your dream home? Click here to tell us all about it, and we’ll help you find or build exactly what you’re looking for at Candela!
What is Candela? A 460-acre master-planned community where the future is bright! A hot spot where small-town charm meets easy access to big-city conveniences. A friendly neighborhood that’s close to some of the best schools in the state and filled with world-class amenities. A place where you and your family can live your best and brightest lives, safe and comfortable in the home of your dreams. If you want to learn more about Candela, come out to our Fall Inventory Event, take a tour, and fill out the contact form to be among the first to hear about new homes and upcoming events that affect our community here in Richmond, Texas!