With this being an interesting housing market, the “end” of the selling season and possibly higher interest rates coming up, a lot of people are wondering if it’s time to make the jump from renter to homeowner. Of course, making such a move involves much more than browsing real estate listings and cobbling together enough for a down payment.

One of the most important things a first-time home buyer can do is prepare a budget, purchasing a home is the largest financial event you will have, so be prepared.

Preparation for Buying a Home?

First of all, there’s a whole lot more that goes into buying a home than many people realize.  When you’re preparing your finances for buying a house, here are a few steps you need to take first:

• Get your credit in shape: The higher your credit score, the better deal you’ll get on a mortgage. The goal is to get approved for the lowest interest rate possible, so before you apply, make sure your credit is in good shape.
• Have enough saved for a down payment – and then some: A good amount to shoot for is 25% of the purchase price. If you put down less money, you still may be able to get a loan, but it’ll come with higher monthly payments. Typically, when you put down any less than 20%, you’ll need to have private mortgage insurance, which is another monthly bill to prepare for.
• Prepare for other upfront costs: Home inspection (a few hundred dollars), closing costs (estimate between 2% to 5% of purchase price) and extra cash. Some lenders may require you to have some cash in the bank after the purchase is complete, maybe two to six months’ worth of mortgage payments.

In terms of your monthly budget once you’re in the house, a good rule of thumb is to spend no more than 25% of your income on housing – including mortgage payments, private mortgage insurance (PMI, if you need it), property taxes, homeowners insurance — these are all the monthly bills specifically tied to the house.

Other Costs after close of escrow

Buying a house is exciting, but you need to go ahead and prepare yourself for unexpected expenses — that’s just the reality of owning a home. No more calling the landlord or leasing office to come fix something. Whether it’s a broken light bulb or an HVAC that no longer works, or my personal favorite the water heater went out and there is water everywhere. the cost of that repair is coming out your pocket.  I’ve always had a “house account” for repairs, out of that account I also paid for a home warranty once a year, so you should overestimate how much money you’ll need to cover all of your expenses each month.

As we all know by the recent epidemic, giving yourself a cushion to fall back on — cash savings you can dip into to pay for an unexpected repair or to cover your bills.

A few other costs that come with owning a home: property taxes, homeowners insurance, disaster insurance, flood insurance may be required for homes in certain areas, higher bills (utilities, heating, air conditioning), maintenance — any and everything is your responsibility.

The bigger the house, the more expensive every single bill will be. Keeping up with regular maintenance is crucial in order to avoid bigger, more expensive repairs down the road

 Home-buyers Make Sure you stay within your budget

Just because you can qualify for a bigger house does not mean you should buy one. The financial risks are extremely serious.  Personally, I ask my buyers to create a budget before we start looking.  Leave the RENT/MORTGAGE blank and include food, pet expenses, prescriptions, contributions, entertainment, and anything else you can think of what is left over is what you can afford for a mortgage.

Bottom line: Buy less house than you can afford. And even on a less serious scale, you don’t want to live in a house that you can’t afford to furnish, or you can’t afford to take vacations because you have nothing left to spend or save each month.

For individuals who are considering the purchase or sale of a property, it is important to have a real estate professional you can trust.  Having a realtor who can navigate the changing waters of the real estate market with integrity and honesty is not just helpful, it is imperative. That is why it is my pleasure to introduce Your Property Connection, Inc (YPC) as Northern California’s premier real estate brokerage.   YPC serves Placer County, Sacramento County, Eldorado County.

SERVICES:   Listing, Buying, Investing, Probate, Short Sale, Short Sale Negotiations, Real Estate Counseling, Options, Avoid Foreclosure, Free Loan Modification.