Buying a home is a part of most people's lives. It fits right into our finances with saving for retirement and health insurance. It is simply a part of our finances. You can turn to a lot of places for advice when buying a home. You can talk to a realtor, a mortgage lender or even your family. But there are some tried and true personal finance laws that fit the home-buying situation perfectly. Rule 1: Do your homework It used to be that you were told to learn as you go. After all, the saying says that you only learn by making mistakes. Not true. Don't feel as if you need to just go out and jump into a home because that is what you are expected to do. Take some time and do your homework. If you don't have the money and the time to devote to a home, then buying is not for you. Look at your finances, job situation, family life and goals when deciding what and when you want to buy. Don't forget that owning a home is a big deal. You will not only have monthly payments, but you will also have insurance premiums, property taxes, utilities and possibly even PMI to tack onto the cost. Renting could be a better choice for right now. Rule 2: Buy what you need If you buy something just to tide you over, you might find that it doesn't last long. Advisors will tell you to buy quality and for the long term when it comes to big ticket items. The same goes for a house. Yes, buy a small starter home if that is what you want and what your finances dictate. But unless it is a roomy home at a good price, you may have to move fairly soon. And all of the commissions and closing costs could be avoided by simply buying what you need now. Rule 3: Fixed-rate is the only way to go I know that you may be thinking that adjustable rate mortgages have the potential to go down in interest rate. Well, they can. But what will you do if it goes up? A fixed-rate mortgage gives you the security in knowing that what your payment is today, it will be tomorrow and twenty years from now. It's not going to go up and throw your budget in the pit. If you have extra cash, go ahead and add it to your payment and get rid of that mortgage early. What is the perfect term? It depends on your finances. But remember, you will own your home quicker, have more equity faster and pay less interest over time if you pay off your mortgage in 15 years versus 30 years. Rule 4: Have a backup plan If you haven't noticed it now, you will. Things go wrong. Often. They just do. And you will be glad you have a backup plan when you are down to your last penny. I see nothing wrong with taking out a equity line of credit and not using it. Just tuck it away for an emergency. Don't touch it until absolutely necessary. Or better yet -- forgo the temptation and make sure that you save some emergency money. You will need about three months worth of expenses for safety's sake. But if you aren't a good saver, your home equity will be a good backup plan. Rule 5: Take your time Like rule number one, you should simply take your time and have everything lined up before you jump on in. Take the time to search for a home. Look at the neighborhoods, the market and the homes that interest you. The more you know, the better you will be at negotiating. There is no big hurry. There are plenty of homes out there. Dream homes are a dime a dozen, believe me. If they weren't, so many people wouldn't own homes. It all boils down to being wise in your decisions. Look at your finances, goals and needs before you consider anything else. These factors are the necessities. The rest is just nice. By using your financial sense, you will find that homeownership is a natural part of life. |
