Whether you are a first time home buyer, refinancing a mortgage or buying after resolving a previous mortgage debt problem, it is important to really examine all of the costs associated with a new mortgage. Many people end up in financial trouble later on simply because they failed to consider all of the costs of buying, and owning a home.
Buying a home is a big investment and is often your biggest asset, which is why it is the most important financial decision you will make in your life. Because there are several challenges associated with buying and owning a home, make sure you have considered all of the following:
Did you buy within reason? It is always a good idea to get pre-approved for a loan before you begin the home shopping process. However, it is important that you (1) don’t buy at the top of your pre-approval amount and (2) spend more on a home than you can afford. Many people find that they are pre-approved for loans that exceed what they need, or can afford, to maintain each month. While you may be able to purchase a $300,000 home, your monthly budget may not be able to support this payment. Always determine how much a month you can afford to spend on a mortgage payment and only look for houses in that price range.
Do you have enough to cover closing costs? While some lenders do not require much in the way of a down payment, financing 100 percent of your loan is not usually a good idea. When you lack the funds necessary to put a down payment on a house, this usually signals a bigger financial problem. Further, if you do not have enough out of pocket money to cover closing costs, you may find yourself in trouble later on. It is a good idea to wait until you have at least a 5 percent down payment plus closing costs before purchasing a house.
Are you saving for a rainy day? The quickest way to foreclosure is a lack of emergency funds. No one can predict the future and unforeseen events, but not having enough savings to sustain your mortgage payments on a rainy day can be problematic. It is recommended that homeowners have at least 3 to 6 months worth of expenses saved as a cushion in the event you lose your job, suffer a devastating medical condition or other major life event.