8 Financial Tips for Prepping to Be a Homeowner
Buying a home may be one of the biggest financial decisions you make in your life—and one that will affect you for decades to come, for better or for worse. The key to avoiding the ladder is to be prepared. When you do the necessary research and take helpful courses, for example, you’ll sign the dotted line feeling ready to take on this new chapter of your life.
We asked experts to give us their top financial tips, so consider reading their advice as your first step in preparing to become a homeowner.
Take a First-Time Buyers Course
“Potential first time homebuyers should take advantage of local resources like HUD-approved housing counseling agencies.
A housing counselor can help you walk through the financial calculations of becoming a homeowner, know what your options are in terms of different types of loans, rates using the OnQFinancial’s VA home loan calculator, help you obtain your credit score (important to make sure your score is based on accurate information since reporting agencies are notorious for making mistakes), and they can also let you know if there’s special first time homebuyer programs you might qualify for that can help with putting together a down payment.
Many states, local communities, and even banks, have special programs for first time homebuyers, and some have programs for teachers and other government workers. You can find a housing counselor on the CFPB’s website.”
Kevin Stein, California Reinvestment Coalition
Prepare For The Unexpected
“Before you buy a home research what your home could rent for? What if the market takes a dip or you need to move quickly and can’t afford to sell? Being able to rent your home for a profit or even to cover your expenses would be a huge help. Knowing this before buying helps put a plan together for the unexpected.”
Sabrina Robinson, Real-Estate Consultant
Know What a PMI Is
“If you ask people what is necessary to buy a home, most experts will tell you a cash down payment of at least 20% is a key factor. Lenders will see you as a stronger borrower who brings less risk to the table, and that can increase your chances of getting the mortgage you want with a favorable interest rate.
However, you don’t have to put 20% down to buy a home. In fact, many people are able to buy a home with just 10% down. There’s just one hurdle to overcome: private mortgage insurance (or PMI). A PMI has it’s pros and cons, and knowing what they are before agreeing to this option will ensure you don’t get stuck with an extra monthly payment you can’t afford.”
Benjamin Feldman, Unison
Enroll in a Credit Reporting Program
“PMI property managers offer a really great program that helps prepare tenants for home ownership, it is called Credit Reporting Program. For a monthly fee, we report to credit bureaus every on-time payment they make. We have seen this really help our tenants raise their credit scores which qualifies them for better home purchase financing options.”
Cassie James, Property Management Inc.
Don’t Miss These Budget Details
“Future homeowners should do two things. The first thing future homeowners should do is to budget for home improvements and appliance repair. Plan on spending 1.5 percent of the home’s value on emergency repairs and improvements annually. The second thing is to buy life insurance that covers the value of the home’s mortgage.”
Dan Green, Growella
Research Mortgage Rates
“Prospective homeowners should educate themselves about mortgages before they start looking seriously at houses. You can save yourself a lot of money if you get the right mortgage for your situation. Maybe an ARM with a lower interest rate makes sense for someone buying a starter apartment. Maybe a low down payment option makes sense for someone with low savings. If you can figure out your options, you can buy as an educated consumer.”
David Reiss, Professor of Law, Brooklyn Law
Put Money Aside for Incidentals
“Everyone should put money aside $1,000 to $5,000 for incidentals. This would cover unexpected items as well as upcoming maintenance while the new homeowner adjusts, customizes their home, and learns about what their specific property requires. Things add up quickly.
You will spend $500+ at the local hardware store each month for the first 4 months of ownership. No matter how much someone plans, they always end up spending this much because they will want to make the place their own.
Unexpected items to plan for include random purchases, appliances and equipment, tools and maintenance.
Finally, don’t forget services: This is all too often overlooked. Something will break. Whether it is your heater when you turn it on, hot water or a rock through a window- keep $1,000 aside for “accidental or emergency repairs”. This way when something happens it is not a punch in the gut- and you can budget and slowly rebuild.”
Sotereas Pantazes, EFynch.com
Find Your Team
“Every day I get a call from someone who made a mistake when buying a house. Every person you deal with in the home shopping process will try to make themselves a one-stop shopping experience.
1. You need to go to a mortgage loan officer that understands your finances and has time to communicate with you. From this person find out how much you can afford, and draw a hard red line at that number. Then start looking for homes at 80% of that number.
2. You need a buyers’ agent. This person should be tech savvy. Good buyers’ agents will inform buyers of new houses on the market within 5 minutes of their listing.
3. You need a real estate lawyer. You are signing a contract to make the most expensive purchase of a lifetime!
4. You need a team of inspectors. If you wait until you sign a contract, you will have 10 days to select the inspectors and get the work done. Make the selections when you have time to interview.”
James S. Tupitza, Tupiza & Kalia P.C.
Educate Yourself on Homeowner Costs
“Educate [yourself] on the real cost involved with homeownership including the type of home, if there are association fees and assessments involved which [you] cannot control. Don’t forget, how often do real estate taxes increase, what the typical insurance costs are for houses in the area, etc. For example:
- How often does your homeowners’ association raise fees?
- Has the condo association had three assessments in the last eight years?
- When is the next assessment anticipated? Will flood insurance be necessary?”
Sarah M. Place, Place Trade Financial, Inc.