You’ve dreamed of owning a home for as long as you can remember. But lately, your dream has been more like a driving force than a twinkling in the eye.
Perhaps your friends are all buying homes and pressuring you to do the same. Or maybe your rent just went up again. Whatever the case, you simply can’t wait another year to buy.
There’s just one thing: You aren’t quite sure you can afford it.
So how do you know when you’re ready to take the leap? This handy checklist is a good place to start.
1. You’re debt-free with a healthy emergency fund
This ensures you can handle any unexpected expenses that come your way once you own a home. You don’t want Murphy to send you packing the first time the roof leaks!
Use the debt snowball to knock debts out one by one, working your way up from smallest to largest to build momentum. There’s no better way to free up income for more worthwhile pursuits — like home ownership!
Once debt is a distant memory, get busy stockpiling money in an emergency fund. Three to six months of expenses should do the trick.
2. You have a good down payment
The best way to buy a home is to put 100 percent down. If paying cash for your home isn’t in the cards this year, set a goal of saving at least 10 percent. Of course, 20 percent will put you in an even better position because you’ll avoid paying private mortgage insurance (PMI).
If you decide to go with a mortgage, stay conservative. We recommend keeping your payments at no more than 25 percent of your take-home pay on a 15-year conventional fixed-rate mortgage.
3. You can pay your own closing costs
Some home sellers cover closing costs to sweeten the deal — but don’t bank on it. On average, closing costs can range from two to five percent of your home’s purchase price. For a $200,000 home, that’s anywhere between $4,000 and $10,000 to cover items like:
- Loan origination fee
- Home and pest inspection fees
- Prepaid property taxes and mortgage insurance
- Title insurance
- Recording fees
- Underwriting fees
You can put money aside for your closing costs, but you won’t have a clear idea of what those costs will be until you receive a loan estimate form from your lender after you apply for your mortgage. Just be aware that these can change before it’s time to close on your home.
You should receive your final closing disclosure form at least three days before closing. Review it carefully for unexpected cost differences, and ask your lender to explain any charges you don’t understand.
4. You can cash flow moving expenses
Whether you pay a moving crew hundreds of dollars to pack up and move your belongings, or you provide a pizza dinner to a handful of your best friends after they help you move, you’re going to have plenty of moving expenses:
- Boxes, bubble wrap and other moving supplies
- Deposits for utilities
- Cleaning supplies
- Appliances that aren’t included in your home purchase
- Any pre-move-in upgrades like painting, new furniture and closet organization
While you wait for your closing date, get good estimates for what these costs will be — request quotes from moving companies, shop for appliances, etc. Pad your move-in budget a bit so things go as smoothly as possible, and don’t let new-home excitement cause you to overspend on items you don’t need right away.
A helpful tip if you’re looking to buy a home
If you really want to keep costs in check, work with a buyer’s agent. Having a buyer’s agent by your side brings two big benefits:
Save money. In most cases, the home seller pays the commission for your agent. So you pay nothing to get expert help! Even better, a buyer’s agent can save you thousands of dollars on your dream home by fighting for your best interests at the negotiation table.
Save time. Without a buyer’s agent, you’ll have piles of paperwork to wade through. Life’s too busy for that! Let an expert who knows all of the laws and regulations specific to your city take care of the red tape for you.
So be sure to find an agent with a ton of experience in your area. With these steps and a reliable agent, you’ll be on your way to fulfilling your home buying dreams!