3 Simple Steps To Buying Your Dream Home
Your dream home. Whether you're buying a starter home or your forever home, knowing what you can afford is key to attaining your home ownership goal. Getting the price right takes patience. It's a balancing act between what you can afford, what you want to pay, and what you might have to give up to attain your dream home ownership goal.
Things To Consider For Your Dream Home
Before you begin on your home buying journey, you should know where you want to live. If you plan to stay put for at least 10 years, aim for a home that will fit your family long term. For example, if you're planning to increase the size of your family, a starter home might be quickly outgrown. Consider compromising on must-have's for more square footage in your living space. By doing so, you could potentially avoid having to sell and buy when inventory is low and your dream home's price is over inflated.
It's All Business
Buying a house is probably one of the largest purchases you will make and it should be approached as a business transaction. But, it is also one of the most emotional. You're not just making a real estate transaction, you're buying a home.
3 Secrets To Getting Your Dream Home
Here are three secrets to buying the most house you can afford without becoming house poor.
Know Your Numbers
One of the things that trips up a potential buyer is not fully understanding their cash flow. This is a great opportunity to do some honest number crunching. Use this simple cash flow calculator to determine your monthly take home pay, expenses, and income surplus.
Don't forget hidden expenses. For example, if you routinely withdraw "pocket money", how much do you draw, and where does it go?
Do Your Homework
Next, try to estimate what your dream home will cost. Include an estimate for real estate taxes, utilities, commuting and maintenance. Will the house need work? How long can you wait before tackling a major renovation, and is it something you can save up for?
To get the most favorable loan terms, aim for a 20% downpayment. Will the needed downpayment drain your emergency fund or other savings? If you're selling a home to buy another, do your homework so you discern a reasonable net sale amount, and how much money you'll have available to invest in your new home. It's a good idea to speak with a local Realtor that knows the area well. In addition, do your own market research. You can find helpful market analysis tools on websites such as Zillow and Realtor.com. It's always wise to estimate conservatively. For example, think "worst case scenario".
Before you submit your mortgage application, do some pre-mortgage preparation. Request a credit report from all three bureaus. Usually, your bank will give you one annual report for free. If you have to pay, the cost is nominal. Pulling your own credit report is a "soft pull". This means it will not impact your credit score.
When you receive your report, check it carefully for errors. Follow the instructions to get them corrected, and potentially improve your credit score.
According to Dave Ramsey, your mortgage payment, including principal, interest, taxes and insurance (PITI) should be no more than 25% of your monthly household take home pay. Most lenders use a less conservative calculation. Nerd Wallet offers useful tools and calculators to help you determine how much house you can afford.
By making a plan and showing up prepared, you have a greater chance of finding your dream home, and having your lender say "you're approved"!