Buying a home is a substantial financial commitment. It can take months or years of preparing and saving before actually buying your first home. But if you’re ready to take the plunge, be sure to yourself the following questions and consider these four things before signing on the dotted line.
Why Do You Want to Buy Now?
The why behind your buy deserves some serious consideration as it may impact everything from location to the type of home you want. Are you looking to buy simply to trade rent for a mortgage that will help to build credit and equity? Do you plan to buy this home, fix it up, then eventually use it as a rental?
Answering these types of questions to get a clear answer can help guide your purchase decision. And knowing what you want can also help guide your real estate agent in showing properties that fit your needs.
Is Your Emergency Fund Big Enough?
An emergency fund has all sorts of uses, from a sudden car repair to medical bills. But another great use for an emergency fund is when something goes wrong in your home. After you buy your first home, the landlord won’t be around to swoop in and cover the cost; it’s all on you.
While insurance may cover in case of disaster, you’ll still need to regularly replace certain things as the home ages. Before you buy, consider and think about the cost of replacing things like the HVAC unit, windows, roof, or flooring. Then, beef up your emergency fund to cover those costs. Having cash on hand when those repairs come around will be a lot less stressful than relying on debt to cover.
How Large of a Mortgage Can You Handle?
Some first-time homebuyers think that they need to use every dollar they’re pre-approved to borrow. But sometimes, starting with a smaller home and a smaller mortgage can put you in a much better financial position.
As part of determining how much you can borrow, you’ll also want to consider if you plan to live with roommates or a significant other who will be footing a portion of the bill. For example, planning to live with three roommates could enable you to take on a larger mortgage than if you’re living alone, but tenants can also be an unreliable source of income.
Who Will Cover the Mortgage if You’re Gone?
You may not have considered the financial burden of a mortgage that might fall on family members or co-borrowers if something happens to you. While you’ll hopefully live on to buy many houses, having a life insurance policy in place could help provide financial protection for loved ones.
For example, if you’ve taken on mortgage debt with a co-borrower like a spouse, they’d be on the hook for the entire mortgage payment when you’re gone. But having a term life insurance policy that lasts through your mortgage term in place means they’d receive a death benefit payout that can help them cover the cost of the remaining mortgage debt.
The Bottom Line
Becoming a homeowner is an incredibly exciting time that also tends to come with stressors. But asking yourself important questions like why you want to buy, if your emergency fund is large enough, how much house you can afford, and what will happen to the mortgage if you’re gone can help set a stable foundation for your purchase. Getting clear on the answers to these questions can help create a seamless home buying experience.
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