Buying a house is an important milestone for most people. It is considered one of the biggest investments one can make in their lifetime.
However, there are several factors you need to think about before buying a home.
You need to think about the location, size of home, features, and more. Most importantly, you should consider the financial aspect.
For example, if you are single,it may be difficult for you to buy a home with a single income (though not impossible).
You should look into some important aspects to get financially ready before purchasing a home.
1- Talk to a financial advisor
Many people skip this step. A good financial advisor can help you devise a workable plan to save money for purchasing a home. After reviewing your credit score and financial history, they will be able to give you a timeline by which you can purchase a home.
They will also review your pre-approval requirements and other mortgage-related matters.
2- Start saving for your down payment
Down payments are often 5-20% of the total purchase value of the house.
You will often have to getmortgagedefault insurance if you want to pay the down payment that is less than 20%.
Another tip is to cut on your expenses for a while to save money.
If you co-owned a home with your ex-partner, you may use your previous home’s equity for buying a new house. You and your ex-partner can even sell the house, and with the freed equity, you both can buy two smaller houses.
3- Establish a good credit score
Your credit score ideally needs to be higher than 600 to gain maximum benefits. Your process for mortgage approval will also go better if your credit score is high.
A low credit score would also increase your interest rate.
A financial advisor can help you create a plan for building a good credit score. You can also try a couple of the following things to improve your credit score:
- Pay off all your debt
- Allow pre-authorized credit payments
- Don’t apply for new credit until your mortgage is approved. If credit inquiries are going on, they will decrease your credit score and will hamper your mortgage approval process.
4- Get the right insurance
When you buy a home with less than 20% of the down payment, getting insurance will be mandatory for you.
You can get up to 95% of the mortgage for the total value of the house if you have insurance.
Insurance will also allow you to get a moderate rate even if your down payment is less the 20%. It will let you build your equity sooner than later.
Lenders often offer life and disability insurance. It is necessary to cover the mortgage payments for some time in case of any unfortunate incident with the person trying to purchase the house.
Apart from this, it is necessary to get mortgage insurance also. If anything happens to you, or you get out of employment, the mortgage insurance will be able to cover you and help you make the payments for your home.