If you are planning to buy a home of your own, then you will likely be concerned about the financial aspect of the purchase. As long as you have a long history of stable income, getting a mortgage is not something you need to worry about. However, you need to plan the purchase carefully to avoid taking on any unnecessary long-term financial stress. In this post, we will look at five financial tips that you should keep in mind when buying a home.
Understand The Full Costs
Be sure to understand what the full costs of acquiring a property are. Only then can you accurately judge whether you can afford it or not. Many people draw up a financial plan by only looking at the purchase price of a home. This is a terrible idea since the purchase price of a home is not its final acquisition cost. In addition to the property price, you will also have to pay the taxes, insurance, mortgage closing costs, and so on. These costs can add up very quickly and increase the final cost of the property by a big margin. A good real estate brokerage firm like Homesinmeridian.com will definitely help you in understanding the full costs involved in owning a particular home.
Consider Your Credit Rating
Your credit rating will have a big impact on your mortgage. Higher the credit rating, the better the loan terms will be and vice versa. Usually, a credit rating of around 650 will enable you to get good loan terms at decent interest rates. A score of less than 550 will make it almost impossible to get any mortgage. And if you have an excellent credit rating, say about 750, you will get the cheapest interest rate offers. Once you have understood this basic relationship between your credit rating and mortgage terms, it should be easy for you to understand that you must only apply for a mortgage when your credit score is at its best. If your credit score is at 620, then pay off your debts, start making more money and wait for some time until the score reaches 700 or so.
Provide 20% Down payment
All mortgage offers will come with a requirement that you pay about 20% of the purchase price of the property as down payment. Now, there are loans that will allow a down payment of less than 20%. But you should avoid such terms and try making at least 20% down payment. This is because the loans that have a down payment of less than 20% can attract an extra charge called the private mortgage insurance, which seeks to protect the lender in case you fail at repaying the loan amount. And obviously, this is an unnecessary extra cost that can easily be avoided if you pay the 20% down payment as expected. In addition, some people might also be tempted to pay the down payment by taking out money from their retirement account. This is a bad idea. Your retirement is your safe haven that will come in handy when you reach old age. As such, it is best to keep it undisturbed and let the interest accrue on the funds. Find out other means to pay the down payment.
Don’t Take Any New Debt
Once you get approval for the mortgage, make sure that you never take any extra debt for some time. Since you already have to pay the mortgage installments, taking extra debt can put too much pressure on you that your monthly budget can go haywire. You might even find yourself unable to make the monthly payments on time. Only take a mortgage on a home when you are fully convinced that you won’t need any additional debt for two or three years after being approved for the mortgage.
Be Wary Of The Monthly Installments
Make sure that the monthly installment you have to pay is something that you will be able to meet without stressing out the monthly budget. If after paying the monthly repayment amount, you will only have money to barely scrape through, then you are putting yourself in a very dangerous position. Every month, you will be forced to mentally exhaust yourself worrying about the finances. This obviously will make life very difficult. So, don’t get too mesmerized and obsessed by a home that you put yourself in such a situation. Only buy a property whose monthly mortgage payments you will be able to pay easily from your income. And after paying the installment, there should be enough money left for you to comfortably live your life and invest towards your retirement.