Purchasing a home is an opportunity to establish a foundation in a space of your own. Whether you are purchasing your first home, second home or cabin or relocating to a more spacious or cost-friendly option, buying a home is a huge investment that requires careful calculation and decision making.
Many people dream of owning a home—of being able to paint their own walls, cut their own grass and relax in a sanctuary that is their own. First-time homebuyers made up 33% of all homebuyers in 2019, with the largest group (86%) of first-time buyers being age 28 or younger.1
With all the perks of owning a home also come a few drawbacks, such as handling any required maintenance yourself, saving for a rather large down payment while also paying off other forms of debt, or taking on a mortgage that could potentially last quite a few years. How do you know if you are ready to buy? Discussing your current financial situation with your financial advisor can reveal what the best option is for you. If you see yourself moving out of the area in the near future or you have other financial goals that you need to prioritize first, renting may be the better option for now.
If the time is right for you to buy, there are a few financial items to consider before taking the plunge:
Everyone has an idea of a location they would like to live in. Would you prefer to be in a specific school district, close to work, or nearby family? Or maybe you’re looking to relocate to a bustling neighborhood where the resale value would be worth your while. Keep in mind that being flexible on location could help you save on cost and put more money towards other items.
Establishing how much you can realistically afford before seriously considering any properties is a crucial step. Decide on a budget that is practical and comfortable for you with your financial advisor or realtor and stick with it—even in the event that you are approved for an amount higher than your budget allows for. The house of your dreams might not be completely worth it if it involves putting all other goals, items or savings on the back burner for at least the near future.
While you may be prepared to pay a mortgage, there is a lot more that goes into the overall cost of buying a home. Consider potentially increasing insurance costs, utilities (energy, water, etc.), taxes, and maintenance costs. One of the largest initial expenses may be your down payment—the initial amount paid upfront for the house. Depending on your loan type and how much you are able to afford, a down payment can be typically anywhere between 3% and 20% of the total cost of the house.2 Additionally, other potential expenses could include paint, new furniture, moving expenses, and so on.
You may check your credit score once every 12 months from each of the three major credit bureaus at the government-approved website AnnualCreditReport.com. Review your credit report to ensure there are no snags or errors that could prohibit you from qualifying for a loan and subsequently purchasing a home.
Will you be utilizing the services of a realtor in your search process? A realtor can help show you homes in your price range and provide valuable insight, as well as help with negotiating, closing, recommending additional services you may need, and more. Factor any fees charged by your realtor into your budget as well.
If homeownership is the right step for you, congratulations! You will have years of memories to look forward to in your new home.
A financial advisor can help you with the considerations above, as well as with any other questions you may have, such as purchasing or increasing an umbrella policy, updating your estate planning documents, and more. Whether you are concerned about how much is the right amount to budget or how to balance your other goals during the home-buying process, a financial advisor can help you prepare for this big investment.
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1National Association of REALTORS® Research Group. (2019, April). 2019 Home Buyers and Sellers Generational Trends Report.
2Zillow. (2018, December 27). What is a Down Payment?