My husband and I are in the process of buying a new home and, wow, what a process it is! While it’s been a lot of fun, I feel like every time we turn around someone is trying to convince us we need the latest and greatest, most popular bells and whistles for our new house. “Sure,” they imply, “you can keep up with the Jones’, too!”
Thanks to my 12 years of experience in the financial services industry, Rob and I agreed on some rules of thumb before we started looking at homes. But this got me to thinking, how does the average home buyer who hasn’t held their clients’ hands through this process a gazillion times get started? Luckily, it doesn’t have to be overwhelming.
Here are 4 helpful tips you should consider to set yourself up for home ownership bliss:
- Compare your bills to your income. Your minimum required debt payments should total no more than 36% of your monthly gross income (that’s your paycheck before taxes are taken out). This includes your new mortgage payment, credit card balances, automobile loans and leases, and debt related to other lifestyle purchases. If all of these add up to over 36% of your income, avoid taking on additional debt.
- Don’t forget about other housing expenses. As a general rule, your monthly housing costs, including your mortgage, home insurance, real estate taxes, association fees, and other monthly home expenses, shouldn’t be more than 31% of your monthly gross income.
- You need a backup plan. What would happen if you suddenly lost your job or had a major health issue? Until you save enough money in cash to cover your total expenses for 3-6 months, including those costs associated with your new home, you should wait. Cash is the first step to making sure a financial setback won’t cause you to crash and burn.
- A variable-rate mortgage may not be worth the risk. Because the monthly payments are typically lower with variable-rate mortgages, they are generally the easiest to qualify for—and may enable you to purchase a more expensive home. But, keep in mind that it’s typically not wise to take on a variable-rate mortgage simply because you qualify for one. Although these mortgages offer the lowest interest rate, they’re also the riskiest, as the monthly payment can increase to an amount that may prove difficult to meet down the road.
My name is Valerie Leonard and I am a financial advisor who works with folks just like you every day to help them live comfortably for now and in the future. If you need an expert opinion on your situation, contact me and we can pursue your new home purchase together.