When it comes to making financial investments, it’s important to stay practical and financially educated. This is even more true when making big life decisionsーsuch as buying a house and committing to a decades-long mortgage. It’s critical to ensure that you’re not overspending.
Working with the right lender can help you avoid overspending on your home. They can help you lock the best rates and even select the best type of mortgage that won’t break your budget. Industry-trained loan officers can also help you understand the entire process and make the journey smooth and stress-free.
Here are 5 more tips from our industry-expert loan officers to help you avoid becoming “house poor.”
1. Take a Careful Review of Your Budget
Pre-approvals are important, and they’re your first step to getting your dream home. Banks will usually tell you that you can get a certain amount of loan, but that doesn’t necessarily mean that it’s your budget for your new home.
While it can be tempting to get a mortgage higher than what you were expecting you can qualify for, it’s always best to carefully review your finances before you start house hunting.
When reviewing your finances, always consider the monthly mortgage principal and interest, insurance, maintenance, property taxes, and homeowner association fees. It’s always a good practice to calculate these expenses and ensure they are between 25% and 35% of your income.
And when you figure out your budget, only look at houses that fit into it. If you do this, you’ll get more flexibility to make competitive offers.
2. Understand Purchase Price
Found your dream home? Don’t put in an offer just yet. Ask your real estate agent for comparative market analysis (CMA). This report will help you understand how much the average price per square foot for your neighborhood. Then, use that to compare the property you’re buying to the other houses in your neighborhood.
If the house you want to buy has a higher price per square foot, ask about the improvements made in the house to justify the price point.
3. Prepare Emergency Fund
Aside from preparing your down payment, make sure you have an emergency fund in place before buying a house. This will come in handy for any unexpected expenses.
Generally, your emergency fund should be able to cover at least three to six months of your expenses. But even if you don’t have that, it’s best to establish a fair amount of savings you can pull in case of emergency.
4. Shop for Lenders
When getting a mortgage, the interest rate is one thing. But you also need to consider your Annual Percentage Rate (APR) as it can impact your ability to purchase and your monthly mortgage.
So take the time to shop for multiple lenders, analyze, and compare rates to ensure you’re getting the most bang for your buck.
Of course, a good credit score will give you a higher chance of qualifying for the best interest rates. Use a mortgage calculator or ask for a quotation and compare your options. Better yet, speak to industry-expert loan officers who can help you find the option that you qualify for!
5. Shop for Homeowner’s Insurance
Exploring your options for homeowner’s insurance can actually save you money in the long run. When shopping for home insurance, it’s critical to determine what coverages you need. Then comes the part where you need to balance the price of the policy and the coverage to guarantee you are prepared for when a disaster strikes.
That said, while it can be tempting to pick the cheapest option, it’s not necessarily better.
Ask for home insurance quotes and don’t be afraid to ask questions. Further, you want to make sure that you’re connecting to a reputable company that will pay your claim if tragedy comes to property.
Bonus: Always Check Your Interest Rate
Interest rates have been at historic lows recently, but they fluctuate up and down. That said, remember that the rates may change between the time you get your pre-approval and the time you close. A slight increase in the rates could mean a higher monthly mortgage.
So always keep an eye on the rates. If you see changes in your rates, you may ask your lender to pull your interest rate and recalculate your mortgage payment. This said, work with a lender that has reputable communication process—one that can provide you information and can work through your issues.
The last thing you want to do is to overspend on your home. When you go over your budget, it can impact your finances and you may end up with a huge amount of debt. It’s important to work with a lender that can help you find the best type of mortgage that fit your budget.
Do you have other tips to share with other home buyers?