The process of buying a home can seem overwhelming, but with planning and consideration you can look to achieve your goal.
The first thing you’ll want to consider is what you want in a home. If you don't know what you're looking for, how do you find the right one? Buying a condominium or a co-op may better serve your needs than a traditional, single-family home. You may even decide that you want to build your home instead. Whatever you prefer, your selection should be based on an informed decision.
Financing a home is very common, so your purchase process will likely involve a mortgage. When you take out a mortgage, your home will serve as collateral to secure the repayment of the loan. How do you choose the right mortgage? You’ll want to consider your risk tolerance and time frame: how much debt you are willing to take on and how long you expect to stay in the home. Just like homes, there are various types of mortgages. The terms “fixed” and "variable” are generally referring to the loan’s interest rate. The rate on a fixed mortgage remains constant throughout the life of the loan, which means your monthly payment will remain the same as well. This type of mortgage is more suitable for individuals with a lower tolerance for risk. The rate on a variable mortgage changes due to fluctuations in the market. The monthly payment amount is recalculated with every adjustment, making this type of mortgage more suitable for individuals with a higher risk tolerance. Most mortgage terms tend to be 10, 15, 20, or 30years. The longer the term of the loan, the lower your monthly payment will be because the payments are spread out over more years.
The next piece of the home buying process to plan for is your down payment. How much should you save? The answer varies based on your personal financial situation, but there are guidelines to estimate what is fitting for you. I recommend that 36% of your total net paycheck can go towards all debt. 28% of that can be your mortgage. The less you are contributing toother debt such as credit cards and student loans, the more you’ll be able to contribute to your mortgage without exceeding 36%. You may be able to obtain a conventional mortgage with a down payment of less than20% of the home value. Low down payment mortgages are somewhat risky for lenders because they believe you are more likely to default on the loan. For this reason, lenders generally require private mortgage insurance (PMI) if you are borrowing more than 80% of the value of the home you are purchasing.
Real estate agents, real estate brokers, and realtors can guide you through the home-buying process and may be able to help with your additional housing needs. Once you find the house you want, it's time to make an offer. Have your attorney review your offer to purchase before you submit it to the seller. Buying a home is an exciting milestone in your financial and personal journey, so it is important to remember that it should not be rushed. Take your time thinking about what you want and what your budget will allow and consult a financial advisor to discuss planning for your specific home buying goal.
Together, we can work to keep you on-track toward your financial goals.
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