Preparing to buy a house

 Preparing to buy a house 

Written by: Joe K. 

Buying a house is one of the most important purchases, and the most expensive purchase, that people will make in their lifetime. Preparation is key for making any big purchases like this. To begin you will obviously need to save money, build your credit score, determine your budget and stick with it to aid you.

Saving money is super important to buying a house. Almost every mortgage requires some kind of down payment. The minimum is 3.5% of the asking price for an FHA home loan. Down payments range from $5,000 to $25,000 because you have to pay 3-5% of the loan and 2-5% for closing costs too. If the asking price of a house is about $250,000 you will need a $12,500 down payment and $7,500 in closing costs. Which totals to $20,000 that you would need to have up front. Planning for a big investment, such as a house by saving up money early on will help a lot in the buying process. In addition, if you don’t put 20% down for a down payment you will most likely need to buy mortgage insurance, which can make the entire process more expensive.

Secondly, knowing and improving your credit profile is an important thing to consider when buying a house. Your credit score is what determines if you are eligible for a mortgage. Also, your credit score can have an impact on your mortgage rate. The higher your score is, the lower mortgage rate you will receive. Most mortgages have a minimum credit score between 580 and 620. Knowing your credit score and improving it is hugely important because it can be guaranteed that it will be harder to pay off your new house with a mortgage in full. Meaning, you would most likely have to take out a loan for your house. The lower the interest rate the better because it will be easier to pay it in full quicker.

Like we talked about in class plenty of times, having a budget and sticking to it is incredibly important. A budget will help you to stay on top of saving money so that you are able to afford your house and the down payment as well. You can use an online mortgage calculator to estimate affordability. Calculators can help you to determine your monthly payment based on a number of factors. This includes the home price, down payment amount, interest rate, loan term, and other monthly mortgage expenses like homeowner’s insurance and property taxes. Once you have figured out what you can afford within your budget you can then estimate how much to save for your down payment and closing costs.

Saving money, knowing and building your credit score, and sticking to a budget can help prepare you to buy a house. Saving money allows you to pay for the down payment and closing costs easily. Following a budget will help to save money and make sure you can still afford everyday expenses. Budgeting also helps the ability to buy a house in a timely manner. Finally, high credit scores make taking out loans of any kind easier, and also allow for lower interest rates, which is why it is so important to build your credit score as soon as possible.

Works Cited

“8 Things You Can Do Now To Prepare For Buying A House.” Mortgage Rates, Mortgage News and Strategy : The Mortgage Reports, 2 Dec. 2020, themortgagereports.com/68062/8-things-to-do-now-to-prepare-to-buy-a-house. 

“Determine Your down Payment.” Consumer Financial Protection Bureau, www.consumerfinance.gov/owning-a-home/process/prepare/determine-your-down-payment/#:~:text=In%20most%20cases%2C%20you%20need,down%20at%20least%2020%20percent.