Buying a home is a commitment and people will often begin their search without properly preparing. You can count on this: Once you start looking for a new home you will fall in love quickly and maybe more than once. AmeriPro Funding’s Tulsa Branch Manager, Don Conwell, shares the steps to take that will save you time, money, disappointment and frustration:
1. Decide if it is the right time for you to purchase a home.
I am not referring to the ups and downs of the housing market or interest rates. For example, you will often hear that now is the time to buy because of low interest rates. While it is true that rates are still near historical lows, I do not advise clients to chase a rate if a home purchase does not make sense at this time in their life. If you are making wise financial decisions the interest rate should not make a house affordable or unaffordable. You are wiser buying at the right time than chasing a low rate at the wrong time.
People need to consider not only the financial cost and responsibilities but also how other aspects of life influence the timing of a home purchase. Things such a job stability, career goals, retirement, future financial resources and obligations, changing family structure or age of children all should be factored in. A home purchase is not a one year commitment. You should ask yourself “Does this fit into my plans for the next 3-7 years”. Owning your first home or moving to a new home can be a very positive step for many people. The decision of when to do that is critical. If it is the right time then you are ready for the next step.
2. Determine the monthly house payment you are comfortable making?
Once you have decided that home ownership fits your life plan you need to ask what monthly housing payment you are comfortable making. Let me note here I am not talking about just principal and interest. It is in dishonest when someone discusses a payment with you but only includes principal and interest and excludes taxes, insurance and other obligations. It sounds great but it is not reality.
In addition, you would think that after all we have been through in the last 7 years that you could not be approved to buy more house than you can afford. This is not true. Even with government guidelines in place that are aimed at preventing you from getting in too deep you can still drown if you are not careful. In fact I would go so far as to say the amount you can qualify to buy is, if not irrelevant, the absolute wrong question to start with.
There is not a one size fits all. Even if my clients all had the same income the answer to the monthly payment question would be different for each of them. The reason is because, regardless of income and other financial considerations, each person views a home differently. We all have limited resources. The choices you make here will have a ripple effect in what money is available for other things. Are you a person whose home is your castle? Is it where you like to spend most of your time? Does your family, relaxation, entertainment and social life mainly involve activities in your home? On the flip side are you just looking for a place to drop your backpack and rejuvenate before your next trip to the Amazon? Giving consideration to how the home and in turn the monthly payment fits your life style is critical to home ownership being a joyful experience. You do not want to end up house rich and life poor.
3. Decide how much money to put down on your home purchase?
This will determine the types of loans available, the cost of those loans and the offer you will make on a home. Like the timing and monthly payment decisions the answer to this question will also need to align with not only your current situation but your longer term plans. If you have few dollars available or by choice or necessity you would like to get into a home with as little money as possible, then your options for financing will be more limited. If, on the other end of the scale you could pay cash for a home you are still faced with the decision of what is the best way to use your money. This can be a complicated decision. You should always involve a trusted financial advisor in this discussion.
Regardless of how much money someone has to put down on a home there are a couple of things that everyone needs to ask themselves. The first being “What other cash needs will owning a home involve?” First time homebuyer’s can be surprised at the number of items needed to furnish and maintain a home. Even seasoned home owner’s find that: “There is no way that old furniture is going in our new home”. Credit card financing of these “wants” and ”needs” is not wise. Adding new debt on top of a new house payment is not a recipe for financial health or a peaceful night’s sleep.
Another point is that simply maintaining a home takes money. Opinions of how much you should plan for yearly vary but a good estimate is 1% of your home’s value. The ever present hailstorm in May, the air conditioning unit in August or the chilling ice storms in December are all easier experiences to endure if you have prepared financially. Typically the older the home the more “maintenance surprises” you will have. A well maintained existing home or a newly constructed home can significantly reduce unexpected maintenance cost.
Even if the house does not throw you a curve life may. You need to ask “After my home closes will I have enough money left over to cover unexpected life expenses? Cash needs such as medical expenses, car repair or replacement, or even a drop in income need to be taken into account. To prepare for these requires discipline and the establishment of what is often called an “emergency fund”. A good goal for this fund would be 3- 6 times your monthly income. Many people do not have this safety net when they purchase a home but it should be a top priority.
4. Sit down with an expert to explore all of your options.
Finding someone you trust who can put all the pieces together is important. So at the same time you are trying to answer the timing, the down payment and monthly payment questions you should also be taking the important step of meeting with and choosing a lender. This step is not only normally required before submitting an offer but it will also give you the confidence to know that when all is said and done you are where you want to be.
It is important to sit down with a lender who can map out a plan that takes into account where you are, where you want to be and the resources you have available. They will be able to discover and assist with any unknown opportunities or hurdles. This process will include the lender looking at every aspect of your finances. Your credit history, income, debt, banking and investment information, taxes, legal documents, etc. will need to be provided. In all honesty this can be the most annoying and intimidating aspect of the process. Your lender should proactively and gently guide you through this.
Understand that the choice to buy a home does have real consequences. Whether your goal is to buy a home in 30 days or 3 years, taking this thoughtful approach to buying a home will assure that when you do fall in love you can make it to the altar.
AmeriPro Funding is an award-winning Tulsa mortgage company dedicated to providing expert home loan advice and an exceptional experience.
For more information on AmeriPro Funding, visit DonConwell.com
Company Name: AmeriPro Funding
Contact Person: Deedra Determan
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Address:1609 South Boston Ave Suite 200
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