5 Expert-Backed Money Moves to Make When Planning for Your Dream Home

If you hear the phrases “dream residence,” you’re in all probability not the one one to image an upscale residence that boasts spectacular sq. footage, high-end finishes, and a killer view. Possibly it’s a shocking seaside property with Cape Cod vibes, or maybe it’s a contemporary Mediterranean-style home with superbly manicured grounds. And whereas these kind of luxurious properties are actually good to pin to your Pinterest board, it’s good to do not forget that a dream residence will also be a starter residence with plenty of potential.

The truth is, shopping for a starter residence units you as much as construct fairness that may provide help to afford a fancier residence down the street. However how are you aware in case you’re even financially prepared to purchase a house? And what are you able to do to arrange your funds, so that you simply’re in a position to get accredited for a mortgage? What about saving for a down fee and shutting prices? These are all nice questions—and fortuitously, we partnered with Financial institution of America to convey you skilled solutions.

On this installment of The Everygirl’s Information to Constructing Wealth (learn half 1, 2, 3, and 4), we chatted with Kathy Cummings, Senior Vice President of Exterior Partnerships at Financial institution of America. She gave us the inside track on all the perfect cash strikes you may make once you’re planning to purchase a house. Whether or not you’re simply now beginning to consider homeownership otherwise you’re actively hitting up each open home in your goal neighborhood, listed below are 5 expert-backed methods that may assist make your dream of residence possession a actuality.

1. Decide the month-to-month fee you may afford

It’s tempting to suppose by way of how a lot you may borrow, however Cummings advises it’s greatest to deal with how a lot you ought to borrow. You wish to ensure you’re not stretching your self too skinny. “As a normal rule of thumb, take your month-to-month revenue, earlier than taxes, and multiply that by 28%,” says Cummings. “This offers you an thought of what you may comfortably afford on your month-to-month mortgage fee.” 

Make sure you account for different bills, reminiscent of property taxes, home-owner’s insurance coverage, and personal mortgage insurance coverage (PMI) when evaluating month-to-month prices. One of many best methods to determine how a lot you may afford is to make use of a web based affordability calculator, Cummings suggests. You merely plug in your numbers, and it does all of the laborious math for you. It’s a useful software that can provide you an estimated mortgage fee for a property you could be eyeing, and it could provide help to solidify your worth vary. 

2. Keep away from making any main adjustments to your funds

If you’re making use of for a mortgage, the secret is consistency. “Lenders search for reliability,” Cummings explains. Along with sustaining credit score rating, there are a number of monetary strikes you must keep away from, since they’ll have an effect on your probabilities of getting accredited for a mortgage mortgage. These embrace:

• Keep away from getting a automobile mortgage: “In case your automobile breaks down, resist the temptation to take out a mortgage for a brand new or used one except completely mandatory—including a giant expense like a automobile mortgage can damage your credit score rating and make it tougher to qualify for a mortgage or enhance your month-to-month funds,” says Cummings. “When you can’t borrow a automobile or discover one other technique to get round till you purchase a home, take into consideration delaying your private home buy if attainable.”
• Maintain off on getting a brand new bank card: “Opening a brand new bank card also can damage your credit score rating, similar to a automobile mortgage,” Cummings explains. “This might have an effect on your mortgage fee and the way lenders view you as a borrower. Keep away from new bank cards till after you’ve secured your mortgage.”
• Don’t change jobs: “Your employment standing is essential when making use of for a mortgage. Switching from a secure salary-based job to 1 with hourly or commission-based pay could make lenders uneasy due to the fluctuating revenue,” cautions Cummings. “When you’re contemplating a job change, take into consideration the way it may have an effect on your revenue and contemplate adjusting your home-buying timeline accordingly.”

3. Save for a down fee and shutting prices

If you’re saving up for a down fee, Cummings advises that aiming for 20% of the house’s worth will help you keep away from paying for personal mortgage insurance coverage and decrease your month-to-month mortgage fee. “Additionally, don’t neglect to save lots of for closing prices, which usually vary from 3 to five % of the mortgage quantity and embrace bills like title insurance coverage and taxes,” reminds Cummings.

Nevertheless, Cummings says it’s a fantasy that you simply’re required to place 20% all the way down to buy a house. She explains that so long as you’ve gotten good credit score, there are quite a few sources and applications out there for first-time homebuyers with restricted budgets. For instance, Financial institution of America’s Down Fee Grant gives eligible homebuyers with 3% of the house buy worth or as much as $10,000 – whichever is much less – in grant funds for the down fee, with no compensation required.

The perfect half is that Financial institution of America’s grants might be mixed with different home-buying help applications, reminiscent of America’s Residence Grant, which may give as much as a further $7,500 that would go in direction of closing prices or decreasing the rate of interest. When you’re not in a position to put 20% down on a house, Cummings extremely recommends that you simply take a look at Financial institution of America’s Down Fee Heart and grants, in addition to native sources, to seek out help applications that fit your wants.

4. Discover your greatest mortgage choices

Simply as you take a look at many alternative homes earlier than you determine which one to make a suggestion on, you also needs to weigh your choices relating to mortgages. In line with Cummings, these are the principle forms of loans to think about:

• Mounted-rate Mortgage: “With a hard and fast fee, your rate of interest and month-to-month fee stay the identical all through the time period of the mortgage,” says Cummings. “This presents stability and makes budgeting simpler, however the preliminary rate of interest could also be larger than an ARM.” The commonest mortgage phrases for fixed-rate mortgages are 30 and 15 years.
• Adjustable-rate Mortgage (ARM): “An ARM has an rate of interest that may change over time primarily based in the marketplace,” explains Cummings. “Whereas preliminary charges are sometimes decrease than fixed-rate mortgages, your month-to-month fee can fluctuate, making budgeting tougher after the preliminary interval.”
• Curiosity-only Mortgage: “This kind of mortgage permits you to pay solely the curiosity on the mortgage for a sure interval, delaying compensation of the principal,” Cummings states. “It will possibly present flexibility with month-to-month bills, and for first-time consumers, it could defer bigger funds till later once you may need the next revenue.” With this mortgage possibility, be certain to train warning as a result of after the preliminary interval your mortgage fee will considerably enhance.

When you’re a first-time homebuyer with restricted funds to cowl the down fee, Cummings explains there are additionally numerous choices you may discover, relying in your monetary state of affairs, credit score historical past and private preferences. “For instance, there are sometimes low down-payment loans out there to first-time consumers, reminiscent of Financial institution of America’s Inexpensive Mortgage Resolution® mortgage,” says Cummings. This mortgage offers consumers a low down-payment possibility (as little as 3%) and aggressive rates of interest.

5. Preserve your future monetary objectives in thoughts

Whereas it’s simple to get swept up within the pleasure of shopping for a house, Cummings says it’s essential to not lose sight of your different monetary objectives. When you’re presently paying off scholar loans or saving for retirement, contemplate how proudly owning a house matches into your long-term monetary image to make sure you’re not overextending your self. “It’s additionally essential to have a house emergency fund,” Cummings advises, “to cowl surprising conditions like burst pipes or flooding.”

Moreover the precise price of the home, you also needs to take into account that there are different bills concerned when buying your first residence. “These can embrace property taxes, insurance coverage, utilities, and potential owners’ affiliation charges in case you’re in a neighborhood,” says Cummings.

Shopping for a house might be the most effective methods to construct wealth—and by wanting on the huge image of your funds, in addition to factoring in all the prices related to shopping for a house, you’ll set your self up for a safer monetary future.

Further Assets

This put up is sponsored by Financial institution of America, however all the opinions inside are these of The Everygirl editorial board.