1. Decide what you can afford.
According to experts, figuring out your finances is the first step to knowing how much you will be able to afford when buying a home. To do this, you need to understand what your current budget and expenses include and if there are any changes that need to be made. Next, you need to consider how much you are able to spend monthly, which is recommended to be no more than 25% to 28% of your gross monthly income. Finally, you need to understand how much you will need for the home-buying transaction including a down payment, mortgage fees, closing costs, transfer taxes and ongoing costs such as maintenance and repairs the home may need.
2. Improve your credit score.
Credit scores influence the interest rates of your home, which could greatly affect your monthly mortgage payment. For example, a credit score of 740 or higher produces some of the best interest rates, while lower credit scores can result in home buyers paying around $100,000 plus over the life of a 30-year fixed-rate mortgage on a home of around $350,000. To help improve your credit score you should start by checking your FICO score and see if there are any improvements that need to be made such as paying down high credit card debts and paying bills on time.
3. Plan for a down payment.
Down payments are another great determiner of how much your monthly mortgage payment will be and how much interest you will pay over time. It is usually advised that you are able to put down at least a 20% of the cost of the home. This will help to lower your monthly mortgage by decreasing the amount of the loan, decreasing interest, and avoiding the private mortgage insurance fee.
4. Build an emergency stash.
Remember that becoming a home owner comes with other expenses beyond the home-buying transaction that you should be prepared for. As you will quickly learn owning a home has its responsibilities and can sometimes need maintenance and repairs that can set you back if you are not equipped with an emergency stash. It is advised to try and have at least three to six months’ worth of income kept in your savings for such emergencies. This can help you feel confident in your home buying experience and help you avoid any unnecessary setbacks.