Home perhaps for most people is one of the biggest financial investments of their lifetime. Typical homeowners usually have 40 percent of their wealth locked up in paying for homes. Here are some essentials if you are contemplating making the big decision.
- Buying for Long-Term – Take it for granted that you will stay in this house for at least 10 years, if not more. Most people who are found selling live in their homes for at least a decade. Others stay for the long haul. That is why buy a home you want to live in. A home which is ready to be equipped with space & features you need in the long run.
- Buy for Improvement of Quality of Life – Your new home should be able to improve your life. You should not be speculating with your money. Buying a home is not just financial investment, but it is also a place where you would eat, sleep, host friends & raise children. Your life happens here. Regardless of how value of your property appreciates, you will be living in this home for many years to come. Therefore, your first priority should be to find a home which meets all your requirements & helps in building the type of life you want.
- Focus on What Matters Most – Never get distracted by features you do not require. Just focus on what is essential to you. Find a home which you can afford & which fulfills your needs. Shiny features can be distracting & break your budget. Normally nice features drive up the price, but if it fits in your budget, nothing like it. Make a list of your desired neighborhoods & basic needs. Stick to that & find a home which meets these requirements.
- Work on a Budget – Determine a budget & do not look for homes that do not fit in it. Setting a budget early is important, even before you start looking for homes. It is quite easy to go over the budget in today’s market since they are so competitive. Location is the most common culprit for urban buyers & there is nothing wrong with that. Be realistic & see what you are willing to compromise upon, home repairs, less square footage or a different neighborhood.
- Down Payment – 20% down payment is normal, but if you cannot afford this, you could either lower the budget or consider a smaller down payment. However, high down payment in fact reduces your financial risk. Nobody wants to owe more money than the house is worth.
- Create a Strategic Reserve – Following down payment, it is ideal to keep a six-month strategic reserve. Though down payment is a significant expense, keeping a strategic reserve separate from the normal bank account is also important. It should cover 6 months of living expenses in case you fall ill. Strategic reserve saves you from financial hardships in an emergency & provides peace of mind.
- Avail Pre-Approved Loans – Get a pre-approved loan in case you want to avoid uncertainty down the road. A 30- or 15- year fixed-rate mortgage would be a good idea. Pre-approval loan procedure requires organizing all paperwork including documenting income & understanding loan options which are available. Even if it is a bit painful now, it will save time later. Your pre-approved loan will also send a signal to sellers that you are a reliable buyer with sound financial footing. Moreover, it is worth knowing what you can afford.
Buying a home consumes time. Though it is stressful, it is a rewarding endeavor. But make sure that you end up closing on a home which meets your requirements. You should also be able to manage your expectations just in case you are unable to immediately find a home that you can afford with features you have in mind. Stick to what you can afford & hold fast to the list of essentials, but don’t overreach or settle for less.