Are you in the market to purchase a home? If so, it’s likely your mind is on money management an awful lot lately. Here to help are these eight critical financial tips for new homebuyers:
Good credit can mean the difference between a high interest rate (and mortgage payment) and a low interest rate (and mortgage payment). It is advisable that, before you even so much as apply for a home loan, you put the necessary time and effort into getting your credit in tip-top shape.
Save for a Down Payment
It’s a good idea to put as much money down on your new home as you can afford to. This will not only keep your mortgage payment as low as possible, but it will also increase your equity holding, so that you can tap into it at a later date if need be.
Live below your Means
This is advice for both before and after the home buying process. Spending less money than what you earn enables you to pay off debt (to improve your credit score), save for a down payment, and beef up your emergency savings.
Assess your Homeowners Insurance options Carefully
Not all homeowners insurance policies are created equal, so it’s important to read up on your options. A policy that saves you money each month may ultimately not pay out—or pay enough—when you need it to the most. Take the time to read all the fine print before you decide that a policy is one you can depend on.
Put Money away
Most financial experts advise that you should have three to six months worth of expenses saved away for “just in case.” Remember that late mortgage payments can all-but destroy your credit, so you should be prepared to draw from your savings in the event that your bill comes due at a time when your income is faltering.
Consider the Fix-ups
Many new homebuyers like the thought of being able to renovate a home and make it uniquely theirs. However, renovations cost money, and you shouldn’t get into more home than you can realistically afford to fix-up to your specifications.
Beware of Dangerous Mortgage Products
Things like balloon and variable rate mortgages can be useful tools for savvy investors, or even for homebuyers who have a clear and reliable plan for handling these types of mortgages once they adjust or become due. If you’re not equipped with the financial knowledge and skill to hedge the risk of these loan products, then you should be wary of them.
Save for Property Taxes
Unless you put some money toward this annual bill each month, you could end up with a huge, lump-sum property tax debt at the end of the year. Don’t forget to account for property taxes when you make your monthly mortgage payment.
Your new home purchase is likely to be the single biggest investment you will make in your lifetime. Protect that investment, and your financial future, by considering all of these critical financial tips before you buy.