Are You Ready to Buy a Home?

If you’re thinking about buying a home, it’s never too early to start planning. Whether you want to buy in about five years or you’re considering taking the leap this year, there are several steps you can, and should, take to be financially ready.

If you’re thinking 5 years

Know your numbers
Check your credit scores, and, if you have credit cards, do your best to keep your balances at least 25% below the actual limit. But don’t be tempted to close them, as that can impact your score. Even if you’re numbers are good, stay on top of your bills. Now isn’t the time to miss those due dates.

Stick to that budget
Not saving enough? Revisit your budget, make a plan and stick to it. You should be putting at least 20% of your income-or more-into your savings. The rest should be divided between necessities and luxuries.

Maybe next year?

Time to curb your spending
Once you’re about a year away from wanting to buy, you should attempt to stash away even more savings. Of course you’ll need to save enough for your down payment and closing costs, but you’ll likely need to purchase a few things, such as furniture or new appliance or two, after you buy your home.

Adding it up
While all this saving is good, make sure you know if it’s enough. Down payment requirements can vary depending on your credit rating and several other factors, and you’ll want to put down as much as you can afford to keep your monthly payments lower. You’ll also need to factor in closing costs and broker fees.

Take it to the bank
It’s important to get pre-approved once you’re within a year of buying. This means finding out from a mortgage lender how much you qualify for and what your monthly payments will be. You should always shop around, as some banks can do better than others and credit unions sometimes have lower fees.

Get shopping
Now that you know how much house you can afford, figure out what areas meet your criteria and your budget. There are some great online home buying tools to help you get a sense of how much homes cost in certain neighborhoods. Once you’ve narrowed it down to a few key areas, a real estate agent can help you find the perfect home and will walk you through the rest of the buying process.

Ready to buy

Be smart about it
It’s usually a good idea to choose a mortgage with a fixed rate when possible. Although you’re monthly payment may be slightly higher, you won’t have to worry about interest rates rising in the future. Choosing the shortest terms you can comfortably afford also works well for some buyers. While most choose the 30-year option due to its lower payments, imagine the interest you’d save by going with a 15-year loan. Whichever you choose, make sure you’re able to set aside funds for costs of ownership, such as repairs and maintenance.

Take a closer look

Even once you think you’re ready, go over your budget and your reasons to buy before you sign those papers. Buying a home is a major investment that isn’t easily undone, so it’s smart to consider you plans for the near future. Factors such as a change in jobs or starting a family can have a huge impact on the type of home or the location that works best for you. Once you’ve tackled this list, you’ll be able to feel more confident that you’ll make the best choice when the time comes.

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