Financial planners, especially fiduciaries, don’t just help people plan for retirement and keep their budgets in check, they can also be great people to turn to when buying a house. Since buying a house is probably the largest financial investment you will ever make, talking to your trusted financial advisor would be a good idea.
Buy Only If You Plan on Staying
When buying a home, you will have to put up quite a bit of cash for the closing costs. These closing costs can vary widely depending on where you go but typically total 2% to 7% of the home’s purchase price. For example, a home that costs $250,000 your closing costs would be around $5,000-$17,000. That being said, in order to recoup from your initial investment, it is recommended that you stay in your house for at least three to five years. This will get you to at least break even and, depending on the market, you may even make a little extra money.
Factor in the Full Cost of Homeownership
When trying to decide between renting and owning, don’t look at only mortgage payments because you will also have to pay property taxes, interest, home insurance, utilities, and other expenses. You should also have an emergency fund in case something goes wrong with the house. That way, if your roof begins to leak or a major appliance breaks, you will have cash on hand to pay to have those things repaired.
20% Down Payment
Getting a conventional loan is normally how most people afford to buy a house. So, unless you qualify for a VA Loan or an FHA Loan, a conventional loan is, typically, the way to go. When using this loan, you want to make at least a 20% down payment, that way you won’t have to pay for Private Mortgage Insurance. PMI is an additional monthly fee that protects your lender in case you default on the loan.
Leave Your Retirement Alone
Once you find your dream home, you are going to want to do whatever it takes to make that home yours. However, you should not sacrifice your retirement to do it. It may be tempting to borrow from an IRA or a 401(k) to pay your down payment, but your retirement savings is the last place you want to go to do that. A better alternative is to see if you qualify for one of over 2,200 down payment assistance programs nationwide. These programs help home buyers with low-interest loans, grants, and tax credits.
Watch Your Spending Carefully
While in the process of buying a home, you will want to watch your spending carefully to ensure you don’t do anything to hurt your credit. This could include closing old credit cards, opening a new credit card, maxing out your credit cards, or making a large purchase like a boat or car.
Don’t Bite Off More Than You Can Chew
Although this may seem obvious, several people make the mistake of buying a house that is more than they can afford. So, be sure that you won’t be stretching yourself too thin in your housing expenses. It’s our goal to find you the perfect home for you and your family and keep you there for years to come.