Top 5 to Consider When Preparing to Purchase a New House

07 Oct

If you are going to be in the market for a new home soon there are plenty of things to consider as well as actions to take to make sure you are ready before you start touring homes. 

Here are a few things to consider when preparing to purchase a new house:

Are you ready?

In addition to the financial obligations of owning a home there are many responsibilities that come with homeownership that you need to be ready for before signing a purchase agreement. 

One of the first things you should determine is how soon you are looking to enter the home market. Are you going to be ready in the next few months or is it going to be a couple of years before you are ready to make the leap to homeownership? This will all impact your timeline in regard to saving a down payment, getting preapproved for a mortgage and even finding a realtor.  

Homes also come with the responsibility of upkeep and maintenance. Are your ready and able to deal with lawn maintenance, snow removal as well as the yearly upkeep of owning a home. It is a good idea to consider how owning a house will impact your day to day living and make sure you are ready for those changes. If these are things you are not excited about it may make sense to rent a bit longer or consider a condo. 

Finally, consider the areas of town that you want to live in and look at the advantages and disadvantages of the specific areas. If you have the time before you start shopping it may pay to rent in the area you are considering to get an idea of the real life advantages and disadvantages of the area. 

Build up an emergency fund

Financial experts recommend have an emergency fund in place before purchasing a home. This will ensure that you can cover your bills if the unexpected happens. Surprise expenses can absolutely pop up with a new home and an emergency fund can help cover those bills, so you don’t have to use a high interest credit cards or loans to cover an emergency. 

While it varies, the majority of financial planners recommend having at least six months of expenses in an emergency fund. 

Consider life insurance and disability insurance coverage

Most financial experts recommend purchasing or at least thinking about insurance issues before purchasing a home. Disability income insurance and a term life insurance policy are both important considerations when you are buying a home. 

If you depend on your income to cover your bills each month (and most of us do) you should seriously think about a disability insurance policy. This coverage will help cover your expenses if you are unable to work due to a long-term injury, illness or disability.

If you are married or buying a home with another person, a term life insurance policy will help your spouse or partner cover expenses if the unimaginable happens to you. Term life insurance is popular in these situations as it is affordable, and the coverage only lasts as long as your mortgage or whatever term you deem appropriate. 

Term life insurance is typically cheaper the younger you are, so it doesn’t pay to wait. 

Determine your home budget

Before you start shopping you need to determine how much house you can afford. Financial planners typically encourage their clients to keep the cost of their mortgage payment, homeowners insurance and taxes under 30 percent of their monthly take home pay. Being house poor can prevent you from saving for retirement, college for the kids and even vacations. 

Once you have determined your budget for a house, consider starting your home search at the low end of your budget to see if homes at this price point will meet your needs. If you find you need to spend more, slowly move up your budget ladder and try to keep your home purchase under your top end. 

Start saving your down payment

In most cases, you will need at least 20 percent as a down payment. This can vary depending on the type of loan you end up getting but it is a good target to shoot for when saving. 

Consider a high-yield savings account to help get your down payment rolling. If possible, have a portion of your paycheck automatically put into the savings account. These accounts are ideal as the money is readily available when you find the perfect house and it is not exposed to the ups and downs of the stock market or other securities. 

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