Buying A House – Part One

Starting place for first-time homebuyers.  Tips for starting the processWe are in the process of closing on our first home!  It’s been a journey of lots of research and loads of paperwork, but we are less than two weeks away from becoming homeowners!

The two things I’m most excited about:  having a garden and our own washer and dryer.  It’s been almost three years of coin laundry (plus the four years before of doing laundry in my college dorm), and I can’t believe how excited I am about that laundry room.

Throughout the process, we have learned a lot about buying a home.

Over the coming weeks, I’d love to share the lessons we’ve learned as a couple and share the resources we found helpful.

Timing

Obviously, the first decision to make as a couple will be if the time is right for you to buy.  Ideally, you want to be able to stay in your first home for five years to make it worth the purchase.  So you will need to look at your future plans and ask a few questions:

  1. Can we stay put for a few years?
  2. Is now an acceptable time to take on new debt?
  3. Do we have an emergency fund in place? (As a homeowner, you will need it!)

Set the Budget

When we started shopping, we knew we needed a realistic price range before we became attached to houses beyond our means.  So there were some formulas I looked at.  The first one told us to shoot for a purchase price 3x our annual income.  The second formula said to keep the monthly payment under 28% of your gross monthly income.

When we looked at these two formulas alone, we were pretty pleased with the number.  But then we received an even better piece of advice:  look at your monthly budget and  decide what can you realistically pay.  Not some before-tax percentage.  Not a formula on total income.

What money did we actually have to spend each month?

The number was a little lower that what we could have qualified for on a loan.  BUT – it’s a realistic payment we can live with and still have money to pay all of our other bills.

So when you’re setting the budget together, don’t ask how much can we have.  Instead ask how much can we spend.  Then you will have a payment you can live with.  Remember the house serves you and your family – you don’t serve the house.

For some great budgeting tools to help you fine-tune a monthly budget, read my article on Financial Basics.  Not ready to buy a house yet, but looking to prepare?  Read my series on credit scores to get you ready for a deal on your loan.

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