With property values reaching pre-recession levels in many parts of the country, some people are once again getting the itch to move. Maybe you’ve been putting it off for years waiting for the market to recover, or perhaps you are a first-time home buyer who has finally saved enough for a down payment. Either way, there are a number of things to consider in order to make this exciting yet stressful experience a smart financial decision.

Check your credit reports

Your credit history can have an impact on your ability to qualify for a mortgage and on the interest rate you ultimately pay. Therefore, it is important to review your credit reports for any errors and areas of weakness prior to applying for a loan.

Pay down debt

One factor in qualifying for a mortgage is determining if your income is sufficient to cover your total debt obligations, including the new mortgage payment. Paying off other liabilities such as student loans, auto loans, or credit cards will improve your debt-to-income ratio, helping you qualify for the new loan and possibly reduce your interest rate.

Factor in desired renovations

Rarely is a home complete with everything to your liking, so be realistic about what changes are needed in order to make it your own. Developing a plan to spread projects over time can possibly make these goals more achievable.

Know your property taxes

Every city and county can have drastically different property tax rates, so be mindful of the area in which you’re searching. The property taxes in one area versus another could push your monthly payment over your budget even if the homes are of equal value.

Buy what you can afford now, not later

It can be tempting to stretch your housing budget under the assumption that your income will rise over time, especially if the mortgage company approves you for even more than you were anticipating. However, living above your means and being unable to afford the additional costs of owning a more expensive house can get you into trouble. Buying something based on your current income is a much safer route to avoid eventual foreclosure.

Avoid PMI if possible

If your down payment is less than 20% of the property value, you’ll be subject to Private Mortgage Insurance (PMI). This additional cost will increase your monthly payment until you’re able to get the home’s equity above that threshold.

Review homeowner’s insurance coverage

Ensure that the coverage is sufficient based on the unique characteristics of the house. You may have fallen in love with the water views of a property, but will that proximity to water result in you needing flood insurance? The home theater will be great for watching your favorite team on game day, but will the insurance cover all of that high-end audio-visual equipment? Much like property taxes, it is important to factor this cost into your monthly budget to determine if that house is affordable.

Maintain a sufficient emergency fund

A lot of cash is spent on a new home purchase including a down payment, closing costs, moving expenses, and renovations, so be sure to maintain a sufficient emergency fund to handle the unexpected costs life can throw your way. Everyone’s needs are different, but typically 3-6 months’ worth of living expenses is a minimum to keep in very accessible funds like a savings or money market account.

Reevaluate life insurance needs

After getting your new mortgage, you should revisit your life insurance needs. A higher mortgage means a larger burden for your loved ones if you were to unexpectedly pass away, so having the right life insurance coverage can help alleviate some of that burden.

Consider the alternatives

Being a homeowner does not make sense for everyone. If it doesn’t fit your lifestyle, don’t buy a house just to keep up with the Joneses. Renting can be a viable alternative for people who don’t want to worry about maintenance or being locked into a certain location beyond the term of a lease.

Submit a contact form, or call us at 864-288-2849 to schedule a free consolation and begin planning for your new home goals.