UFCU SPONSORED CONTENT — Buying your first home is exciting and scary at the same time. Between navigating the well-meaning advice from friends and family and the overwhelming number of helpful articles online, it can be difficult to tell when the time is right to make your move. Here are four ways to know if now is your time.
1. You Know What You Can Afford
Buying a home will likely be the largest single investment you make. Before committing, you should know how large a mortgage, down payment, and monthly payment you can afford. Use an online mortgage calculator and experiment with adjusting the mortgage, interest rate, down payment, and loan length to see how they impact your monthly payment. You no longer need to put 20% down on a home — in today’s market, 3-5% is becoming the norm. If your down payment is less than 20%, keep in mind you’ll have to pay Private Mortgage Insurance (PMI) each month until you accumulate enough equity in the home, which can take several years. When determining your total monthly amount, include things like a monthly payment toward property taxes and homeowner’s insurance. If you are considering an area that has a homeowner’s association, don’t forget that monthly HOA fee, which can be in the $60-350 range, depending on the property.
2. Your Emergency Fund Won’t Be Impacted
It may be tempting to make a withdrawal from your emergency fund toward your down payment, but don’t do it. Not only is an emergency fund good for your financial health, it’s also helpful if you face a home-repair emergency soon after moving in. Having a cushion in case your water heater breaks or a water pipe bursts will help you avoid putting those costs onto a credit card — and adding debt right after this major purchase.
3. You’re Prequalified
After you have an idea of how much mortgage and down payment you can afford, speak with a mortgage lender so they can verify your numbers. They’ll create a prequalification letter stating how much mortgage you’re qualified to borrow based on your income, credit history, and assets. You need this document before you begin looking at homes because it shows your agent and prospective sellers that you’re serious and that your financing is solid.
4. You Know You Can’t Have It All
When it comes to buying a home, compromise is key. Make a list of the features inside and outside the home that are important to you. Include things like quality of schools, nearby parks or restaurants, location, number of bedrooms, and other amenities that you care about. Divide your list between ‘nice to have’ and ‘need to have’ items. Share this list and your prequalification letter with your real estate agent, and have an honest conversation about what you may need to compromise on.
If you realize that you’re not quite ready yet, don’t give up. Now that you know what to do, you’ll be on your way to homeownership in no time. And if you are ready — happy hunting!
If you’re looking for additional financial tips and tools to better plan, spend, save, and borrow, check out PlanU by UFCU. You’ll find options that range from talking with a financial health expert to creating a personalized resource center to meet your needs.