There is no doubting that buying a new home is incredibly exciting, but it is equally as stressful as it is exciting, if not more. You need to think about the type of home you want to buy, what city or neighborhood you want to buy in and make many other potentially difficult choices.
In addition to that, you also need to put a lot of thought into the financial aspect of getting a home and mortgage. With that in mind, this article is going to take you through 4 financial considerations that you should make before buying a house and getting a mortgage.
Set a Budget and Stick to It
Before you even look at any homes, you need to set a budget for yourself. Most cities have houses that can range from a few hundred thousand all the way up to a few million, so there is a lot of variety. As a result, it is important to consider how much you can spend on a home, and stick to that number no matter how nice or cool many of the houses you view might be.
As for what you should set your budget at, that is completely up to you. You should evaluate your needs out of a home, what neighborhood you want to live in and what amenities you want to live near. Once you know what you want and need, perform a little research and see how much you will need to spend to get all of your needs met.
Ensure You Can Afford the Recurring Cost
While most people think a lot about the down payment and the overall cost of the mortgage, those aren’t your only concerns. Every month you will have a number of bills to pay that will range from your mortgage to your utilities. There will also be yearly costs such as property tax.
So in addition to being able to afford the down payment, you also need to do some number crunching and ensure you can afford all the monthly expenses. Tools like an online amortization calculator will be able to help you identify what your mortgage payment will be every month. Of course, utility payments like water, energy and power will vary, as will your property tax.
Build Up Your Savings Beforehand
Deciding to buy a home should not be a decision you make in a week or make on a whim. A lot of time and thought needs to go into the decision, as it is one of the biggest purchases and choices you will make in your entire life.
The reason you should take so much time before actually purchasing a home is to build up your savings. Unless you have been aggressively saving or have impeccable saving habits, you will need a couple of months to save up enough for the down payment, closing costs as well as other things you may need to buy. How much you need to save will depend entirely on how expensive your mortgage and home will be.
Improve Your Credit Score and Credit Report
While there are definitely some borrowing and loan options for those with less-than-ideal credit scores, it is definitely still better to have a high credit score. The higher your credit score and the better your credit report, the lower your interest rate will likely be. You would be shocked at how much you will save in the long run if you apply with great credit.
So if your credit score is struggling due to missed or late payments, or anything else, you should take a few months to make sure all your outstanding debts are paid and give your credit score a chance to climb. Generally, credit scores over 700 shouldn’t have much of a problem securing a mortgage, and anything over 750 and you are likely going to get the best rates possible, as that is considered an excellent score.