You already know that purchasing a home amounts to a major life decision, and isn’t one to be taken lightly. With that in mind, here are a few of the most important factors you should consider before buying—taking into account the factors that will affect your financial life not just today, but five or ten years down the road, too.
Boost Your Credit Score
Your credit score is one of the most important factors determining whether you’ll be successful in securing a loan for a new home. In an economy still recovering from the recession and a credit crunch, premium credit scores are more important than ever. In fact, if your credit score is below 620, it’s unlikely you’ll be able to take out a mortgage at all. In order to secure optimum interest rates, your credit score may need to be above 740.
If your credit score’s not where it needs to be, that may be a sign that you’re not ready to buy. In the mean time, consider these tips for improving your credit.
Put Money in the Bank
When you purchase a home, your down payment will likely be the largest and most obvious immediate cost—but it’s not the only one you’ll need to plan for. In fact, if you’ve set aside enough savings to cover 20% of the home price, you may not have enough cash on hand. To begin with, you’ll likely need to put down a deposit when you first make an offer. You’ll also want to consider the smaller details, from having the property inspected or surveyed to paying various taxes.
You’ll also have to pay several fees at closing, which can add up quickly. The good news is that this process is fairly straightforward and transparent, and with a little bit of planning you can ensure that you have enough cash available every step of the way.
Review Your Finances
Performing a thorough review of your financial situation means more than just looking at your savings and credit score. It’s about envisioning your long-term goals, needs, and prospects, and considering how they might affect your ability to make mortgage payments down the road. Are you planning on starting a family? Are you prepared for the costs associated with routine maintenance and upkeep? How long do you plan to live in the home?
For many people, a home purchase will be the largest purchase of their lives, and it isn’t one to make lightly. Consider all angles of your financial life before making a final decision—it never hurts to double-check.