Estate agent shaking hands with customer after contract signature

Essential Financial Decision Making Tips to Consider Before Buying a Home

Buying a home is a huge step in life that should not be taken lightly. There are many steps to take before securing the deed to your new house. It all starts with smart financial planning.

If you’re looking to buy a home, keep reading to learn more about financial decision making tips to consider.

Evaluate Your Finances to See What You Can Afford

The general rule for financial planning for your home is called the 28 percent rule. The 28 percent rule suggests that this amount of your income should be reserved for your mortgage payments.

Some believe this number should be as high as 36 percent. Either way, you should be able to set aside roughly one-third of your income for housing.

Explore Different Areas

If you don’t feel tied to your current location or need to stay local due to work or family, now is the perfect time to start looking into moving out of state. Since the cost of livingand taxes vary state by state, you may not be able to afford a home in your area, but a perfectly lovely home might be waiting for you a few hours away.

You should consider your future as well. Do you plan on starting a family? The cost of raising a family is different everywhere, as well.

A real estate agent can give you tips for the best areas for you and your (planned) family.

Check Your Credit Score

Your credit score impacts the loans available to you when trying to qualify for a mortgage. Most creditors look at your FICO credit score. It’s a number that considers your credit or loan payment history, owed amounts, length of credit history, new credit, and credit mix.

This score determines your creditworthiness, or how likely a creditor is to trust you to pay off your mortgage.

The lower your credit score, the higher your interest payments will be. If your credit score is poor, take steps to improve it before requesting a home loan. Paying bills on time, paying down debt, and keeping your credit card balances low will help raise your score.

Save Up Money for a Down Payment and Other Expenses

Another critical step in the financial planning process is saving money. You can buy a house with a $0 down payment, although you may be required to take out private mortgage insurance (PMI). PMI covers the lender in case you ever default on your loan.

A $0 down payment will also mean you’ll have higher interest rates and more fees. It also means you have almost no equity. This option is suitable for people who can’t come up with a down payment but should be considered before deciding.

Take a Look at Morgage Terms and Rates

Familiarize yourself with mortgage terms and the average rates in today’s market. Typically rates for 15 or 30-year fixed terms are between 2.5% and 3%. The price of a homewill impact what you can expect to pay for a down payment and other fees.

Financial Tips to Consider Before Buying a Home

Now that you’ve started the search for your dream home, it’s time to get your finances in order; evaluate your income, and see what you can afford. Get a realtor on board to help with buying a home in the right area for you.

If you’re looking for a home in the Minneapolis or Saint Paul areas, get in touch with us.

Guidance and Support Are Key When Buying Your First Home

Guidance and Support Are Key When Buying Your First Home

Guidance and Support Are Key When Buying Your First Home | MyKCM

In June, the number of first-time homebuyers accounted for 35% of the existing homes sold, a trend that’s been building steadily throughout the year. According to the National Association of Realtors (NAR):

“The share of first-time buyers increased in March through June—right into the heart of the pandemic period and the surge in unemployment—and is now trending higher than the 29% to 32% average in past years since 2012.” (See graph below):

Guidance and Support Are Key When Buying Your First Home | MyKCM

Why the rise in first-time homebuying?

NAR continues to say:

“The major factor is, arguably, low mortgage rates. As of the week ended July 16, the 30-year fixed mortgage rate dropped to 2.98%. With rates so low that are locked in under a 30-year mortgage, the typical mortgage payment, estimated at $1,036, has fallen below the median rent, at $1,045. For potential home buyers who were thinking of purchasing a home anyway before the pandemic outbreak and who are likely to remain employed, the low mortgage rate may be the clincher.”

Clearly, historically low mortgage rates are encouraging many to buy. With the average mortgage payment now estimated at a lower monthly cost than renting, it’s a great time for first-time homebuyers to enter the market. According to the Q2 2020 Housing Trends Report from the National Association of Homebuilders (NAHB):

“Eighty-four percent of Gen Z’s planning to buy a home are first timers, compared to 68% of Millennials, 52% of Gen X’s, and 21% of Boomers. Looking at results by region shows that over 60% of prospective buyers in the Northeast and South are buying a home for the first time. The share is above 55% in the Midwest and West.”

There are, however, challenges for first-time buyers. A recent survey conducted by NeighborWorks America also notes that understanding the homebuying process may be the most significant barrier for many hopeful homeowners:

“Homeownership is a particular challenge for many, despite high levels of interest. Americans believe there are many benefits to homeownership and half of non-owners will seek information about the process in the next few years…a large share of non-owners say the process is too challenging and only a minority know where to find advice if they wanted it. And although many would seek the guidance of community and non-profit programs, only one in three non-owners are aware of such services.”

Guidance and Support Are Key When Buying Your First Home | MyKCMIf you’re among the first-time homebuyers who feel the process is complicated, you’re not alone. If you’re not sure where to begin or you simply want help in figuring out how to save for a home, finding a trusted real estate advisor to work with is a critical step toward your success. A real estate professional can help you understand the process, review your current situation, and guide you with a plan to help you to feel confident when buying a home.

Bottom Line

If you’re interested in purchasing a home and need help getting started, let’s connect today so you can take advantage of the support available to guide you through each step of the way.