Ready to take the home-buying plunge? Be sure you follow these seven tips.
1. Recognize home-buying as a long-term commitment.
The days of flipping houses for profit are over. Plan to live in or own the home for at least 10 years.
For military personnel with three- or four-year assignments, buying a home rarely makes sense. You'd be smarter to live below basic allowance for housing, and save the difference to build a chunky down payment and then buy when the time is really right for you.
2. Ask yourself a lot of questions before you buy.
Buying a home will be one of the biggest purchases in your life. Make sure you're making the right decision by answering questions about how this long-term commitment matches your long-term lifestyle goals:
** Are you going it alone or starting a family?
** Do you need a house with a yard for a growing family or your beloved pooches?
** Are you tired of mowing a lawn and think a condo might be more suitable?
** Are you an urbanite at heart or do you belong in suburbia?
3. Don't rush into a home purchase.
Today's historically low interest rates might entice you to get into the real estate market in a hurry. Resist the urge to move too fast.
Instead, spend time making sure your credit reports are shipshape to get the best rates offered when you decide to buy. You can check your reports free once per year at www.annualcreditreport.com.
Food for thought: A 1 percent difference in a $200,000 mortgage can cost you more than $45,000 in additional interest over the life of a 30-year loan.
4. Focus on what you can afford.
Lenders will check your debt-to-income ratio. That is how much money is coming in versus going out in debt payments.
Here's how to calculate debt-to-income ratio before you start loan shopping: Add up all of your debt payments including mortgage principal, property taxes and insurance plus other recurring debt like credit card, student loan and car payments and do the math. Your ratio should be 36 percent or less. You want to do whatever you can to stay out of the debt danger zone.
If you gross $5,000 per month (before-tax income), you should not pay out more than $1,800 per month toward those bills. If you are, your credit-to-income ratio is not ideal. Remember: Just because your lender says you qualify for a particular loan amount doesn't mean you can afford it.
If everything else is on target, buy a home you can comfortably afford on one income. That gives a couple some financial wiggle room in case one partner loses a job or decides to be a full-time parent.
5. Maximize your tax benefits.
As the tax law stands now, mortgage interest is generally tax deductible, which is great incentive for you to buy a home. You can lower your taxable income by the amount you pay in property taxes and interest.
Here's an example: If you earn $60,000 in gross income, and pay $10,000 in interest and another $2,000 in property tax, you can lower your taxable income to $48,000.
6. Build a move-in fund.
In addition to your down payment, you'll need a move-in fund to cover closing costs, furniture and other stuff that you didn't need in an apartment -- like a lawnmower, for example.
7. When in doubt, rent.
All of these tips may make you wonder if you're truly ready to buy. No problem, rent instead. Ultimately, putting off the purchase until you're truly ready -- both financially and career-wise -- carries much less risk than leaping before you look.
