Buying a home is often the biggest financial decision you’ll ever make.
It’s not just about choosing where to live; it’s a long-term investment that will impact your financial future for years to come.
So, if you want to buy a home, there are certain steps you should take to prepare for the purchase, according to several advisors ranked by CNBC. 2024 Top 100 Financial Advisors List.
“The first order of business is to do preliminary homework and financial planning,” said Brian Brady, vice president at Ober Myerwood Investment Advisors in Aspen, Colorado. the company Ranked 23rd Selected on the 2024 CNBC FA 100 list.
Most importantly, it has to be a “smart financial decision” that makes the most sense for you, explains Stephen Cohn, co-founder and co-president of Sage Financial Group in West Conshohocken, Pa. the company Ranked 61st Selected on the 2024 CNBC FA 100 list.
“I meet a lot of first-time homebuyers, friends, kids, acquaintances. They fall in love with the house, but it may not make financial sense for them,” said Ron Brock, managing director and chief financial officer of Sheaff Brock. company Ranked seventh Selected on the 2024 CNBC FA 100 list.
He told them: “Be smart. Don’t be poor because of the house.”
If you’re planning to buy a home, here are some key steps to consider:
1. Have a good credit score
Make sure you have strong strength Creditsaid Shaun Williams, a private wealth advisor and partner at Paragon Capital Management in Denver, Colorado. the company Ranked 38th Selected on the 2024 CNBC FA 100 list.
“The higher your credit score, the better loan terms and lower interest rates you can get,” says Ryan D. Dennehy, a financial advisor at California Financial Advisors in San Ramon, California. Our company Ranked 13th Selected on the 2024 CNBC FA 100 list.
For example, a FICO score between 760 and 850 may qualify for an APR of 6.226%, according to to Bankate.com. Bankrate found that this equates to a monthly payment of $1,842.
On the other hand, someone with a FICO score of 620-639 might receive an APR of 7.815%, which is roughly equivalent to a monthly mortgage payment of $2,163, according to Bankrate’s example. They are based on national averages for a 30-year fixed mortgage of $300,000.
You can start this process by paying any existing fees debt Experts say you can get your loan paid in full on time and avoid a new loan as you get closer to buying a home.
2. Start saving for a down payment
Although a 20% down payment Since there is no need to buy a home, buyers will try to put more money down to avoid mortgage insurance costs and potentially lower monthly payments.
Realtor.com told CNBC that in the third quarter of this year, the average down payment rate was 14.5%, and the median was $30,300.
To start saving for a down payment, you need to figure out your cash flow, or monthly How much is the income and expenses. Our company Ranked 14th Selected on the 2024 CNBC FA 100 list.
Additionally, try to maximize savings or save for a down payment, LaRosa said.
3. Increase emergency savings
It’s not just the down payment that needs to be accumulated, Williams said.
“You should have six months of spending needs in your emergency fund, including housing needs,” he said.
You don’t want to be in a situation where you use up all your savings to pay for the upfront costs of buying a home and end up with no cash left.
In 2023, household emergency spending for 1.5 items per household is $1,667, according to A report from Angi, an online marketplace for home improvement professionals.
3. Think about the way you want to live your life
Ask yourself what it’s like lifestyle “You look forward to it,” Brady said.
“You are looking for a apartment? Do you want a single-family home?
Then you can focus on factors like location and price, Brady said.
At the same time, he said, some of the additional costs that come with owning a home are determined by where you live, such as property taxes, utilities and insurance costs.
In some areas, ‘virtually impossible’ home insurance“Brady said. “If you can (get home insurance), you’re going to pay quite a bit.“
Nearly three-quarters, or 70.3%, of Florida homeowners and 51% of California homeowners say they or the area where they live have been affected by home insurance cost increases or coverage changes in the past year. according to Redfin is an online real estate brokerage.
5. Consider other home ownership costs
Owning a home goes beyond just making your monthly mortgage payment.
Experts say there are additional costs you need to consider.
By then, home ownership costs add up to average $18,118 per yearor $1,510 per month, according to See Bankrate.com report. National data include average costs for property taxes, homeowners insurance and electric, internet and cable TV bills. Maintenance costs are estimated at 2% of the home’s value per year.
“These are very important additions that sometimes people glance over and don’t pay enough attention to,” Cohen said.
Experts say it’s important to have an emergency fund to cover the costs of homeownership since such costs are unlikely to decrease over time.
6. How long do you plan to stay in the house?
“We hope to last at least five to seven years,” Cohen said. The longer you stay in the house, the more likely it is that the fixed costs will amortize or be paid back over time, he said.
Additionally, experts say that in the first few years of a loan, you’re mostly paying the interest rate, not the loan itself.
“In the first five to seven years, you’re not going to build any equity by putting money into a mortgage,” Cohen said.
“If you start thinking about how much principal and how much interest you had in previous years, it was probably all interest,” Block said.
