House hunting can be daunting for anyone, from first-time home buyers to seasoned flippers. There are countless factors to consider: square footage, lot size, location, bedrooms, bathrooms, mortgage rates, property taxes – the list just keeps going! Before you start making offers on that new beach house, there are a few important numbers you should consider when narrowing down your search parameters.
Know your credit score
One of the easiest ways to know how much money you might be able to spend on your home is to speak to a mortgage broker and determine your mortgage pre-qualification. It would be disheartening to fall in love with a home only to learn it was out of reach. A significant factor in what kind of mortgage you qualify for is your credit score. Banks use your credit score as an indicator of your reliability as a borrower. A higher credit score may mean you qualify you for a lower interest rate.
Figure out your down payment
Your down payment plays a big role in determining your price range. If you’re able to put 20% down, this means you won’t have to take out private mortgage insurance or PMI; it can also lead to a better interest rate. Because you’re putting more down and paying more at the outset, you will also make lower monthly payments.
If you can’t put 20% down, many borrowers opt for a smaller down payment. Certain types of loans allow for lower down payments. For example, FHA loans only require a 3.5% down payment from home buyers with a credit score over 580. Overall, choosing the right down payment is dependent on your particular financial goals, overall budget, and personal situation.
Figure out your budget
Once you have an idea of your price range and down payment, dive into what your monthly budget will look like. What monthly payment can you afford? It can be helpful to get a solid grasp on your monthly budget, expenditures, and lifestyle costs so that you don’t overextend yourself.
Do not forget to consider any new expenses that might come along with your new home: do you need a parking pass at the train station now to get to work? Are you planning to install a new AC? You should add these costs to your monthly budget to determine what you are comfortable paying in your down payment and mortgage.
Consider how to protect your home purchase
Whether you view your house as a starter home, an investment, or somewhere you want to grow old in, it is important to ensure you are protecting your investment – after all, you worked so hard to get to this point! One way to help protect your home ownership is via life insurance. Whether it’s an affordable term life policy or a permanent life insurance policy like whole life insurance, having life insurance can help your partner pay the mortgage or even pay off the entire house if you pass unexpectedly. Whole life insurance can also give you benefits during your lifetime, such as being able to borrow against the cash value, which can come in handy if an unexpected cost arises.
The primary purpose of permanent life insurance is to provide a death benefit. Using permanent life insurance accumulated value to supplement retirement income will reduce the death benefit and may affect other aspects of the policy.