After a rocky couple of years, you might be feeling that now is finally a settled enough time to purchase your first property. Whether you plan to go it alone or with a partner, family member, or friend, etc., there are some ways you can go about handling your finances at this time more effectively. Here are three key financial tips to follow.
Get Clear on How Much You Can Truly Borrow
Firstly, you need to be very clear about what you can truly afford to borrow before you settle on a property. Buying a home or investment property is sure to be one of the most costly things you ever purchase, so you need to ensure you can cover the annual costs involved in this kind of commitment.
You must be able to pay the monthly mortgage charges, have a large enough deposit ready to go (generally 20 percent or more is best), and have extra cash available to outlay on insurance, repairs, maintenance, replacement items, and the like. You’ll need to have extra dollars to cover closing costs when you settle a contract, and you may need to pay for homeowners’ association fees, too. Plus, there are potential tax implications to consider.
To help you determine the right amount you can afford, you can utilize a free online mortgage calculator. They make it quick and easy to input information such as the likely property purchase price, deposit amount, and loan term to come up with a monthly payment indication.
Another tip to ensure you can afford to borrow what you think you can and won’t get yourself into financial hot water is to pretend you have the mortgage right now. That is, spend the next few months putting the mortgage amount you’re likely to pay into savings to ensure you still have enough money left over to pay your other bills. It’s also helpful to have some cash set aside in an emergency fund in case you lose your job or have other unexpected financial complications.
Create a Purchase Plan and Set a Budget to Limit Yourself
To keep yourself on track, it’s worth taking the time to create a purchase plan for yourself. Part of that involves setting a budget you need to limit yourself to when you begin inspecting for-sale homes. You don’t want to get too emotionally invested in a purchase because if you do, you’re much more likely to spend over what’s feasible for your budget.
Keep in mind, too, that you might find yourself in a situation where banks or other lenders pre-approve a loan amount for you that’s higher than what you want to spend or feel you should outlay. Be careful not to get tempted into utilizing this entire mortgage amount unless you have a good reason to change your plan.
Also, determine a set checklist for the type of property you want to buy, what features it requires, and its ideal location. If you want to enjoy high capital growth as much as possible, that will affect your choices, as will a goal of wanting to bring in investment income via renting the place out annually.
Find the Best Mortgage for Your Needs
Of course, a big part of making the right financial decision is locating the best mortgage possible for your specific needs. Don’t rush out and obtain a loan from the bank you already have accounts with or the financial institution that’s close by. Instead, research and spend time comparing options and their offerings closely.
Many lenders have interesting products these days, all of which have different terms and conditions and application criteria. The more you learn about your choices, the more informed you’ll be. Do an online search for a broker or bank, etc., near you, such as by typing in “Washington DC mortgage” or “Los Angeles home loan rates” to find a pool of potential lenders to investigate.
Also, check out your credit score. You need to know if it’s decent or not since this is a critical element that financial institutions look at when deciding whether to approve loans and the rates and conditions they offer. If you see that your score isn’t so crash hot, it’s best to spend time improving it (by paying down debts, getting rid of loans, etc.) before you apply for a mortgage.
Furthermore, give yourself the best chance of getting a great deal in a reasonable timeframe by organizing your paperwork before you approach banks and other lenders. You’ll need to gather information such as tax returns, recent payslips or business financials, asset and liability lists, bank accounts, and more to provide to organizations who might consider giving you a mortgage.
Buying your first property is a big deal and needs to be treated as such if you want to set yourself up financially. Consider these three tips as you go about the process to help improve your odds of making intelligent long-term decisions.