Purchasing a home can have myriad benefits for new owners, but it can also pose financial and credit risks for individuals who are not prepared for the responsibility of homeownership. From saving enough money for a large down payment to maintaining the property and paying taxes over the years, it’s in a buyer’s best interest to make sure they are truly ready for the obligations that come with owning a property.
One of the most important steps a person can take prior to speaking with a lender is enrolling in housing counseling and leaning on a credit counselor to help them get financially prepared. For example, a professional may be able to provide more insight on the most effective savings, credit improvement and financial tips that can make the process of obtaining a loan easier. In addition, they may help buyers address questions that could have an impact on whether they are ready to purchase a home.
For example, buyers should consider how much money they can realistically devote to a down payment before submitting a loan application. Most mortgage professionals provide the best terms to buyers who can make a 20 percent down payment or higher. The more a person puts down on their home, the smaller their mortgage payment might be over the years, which can make the overall cost of homeownership more affordable. In addition, putting down at least 20 percent may allow individuals to avoid paying private mortgage insurance – or PMI – which is paid to the lender to lower their exposure if buyers default on their mortgage. As PMI has no positive benefits for the owners themselves, trying to avoid the additional costs by putting down a large amount can make owning a home more affordable.
Buyers should think about their investment long-term
The HUD-certified housing counselors at Consolidated Credit also encourage people to consider how long they plan to live in their new home. While the housing market has shown notable improvements in recent months, it has not yet fully repaired itself, and buyers who plan to gain some returns on their home investment may need to stay in their homes for a longer period of time. Most buyers are encouraged to stay in their new homes for at least five to seven years if they want to see the value increase.
Lastly, consumers should assess whether purchasing a home will get in the way of other important goals, such as saving for retirement or their child’s education. Choosing a home that is affordable and allows them to continue setting money aside for these goals can help buyers ensure they are working toward financial independence.