Buying a house is a big decision. It’s a deeply emotional, exciting and adrenaline-filled activity. Our number-one piece of advice for would-be homebuyers?
Breathe.
Our second piece of advice?
Talk to us, of course.
When you’re considering buying a house, it’s important to work with an advisor who understands your entire financial picture—and is willing to ask the tough questions that will help ensure you’re making the right choice. Both for now, and for your future.
Here are a couple of things to consider as a first-time home buyer.
1. How big of a mortgage can you realistically afford?
Owning a home is great, but if you have no money left over after your mortgage payments to, well, afford to live in it, that’s not quite as great.
Back when interest rates were below 3 percent, a very general rule of thumb was that you could afford a home equivalent to roughly five times your annual income—assuming that you had no other monthly payment obligations such as car loans or lines of credit to repay.
In the current interest rate environment, a more realistic guideline is a home worth 3.5 times your annual income. Remember that the amount you qualify for doesn’t necessarily mean that’s the amount you should be looking to spend. That’s why it’s important to chat through your situation with someone who will take a look at your entire financial situation and help you avoid ending up “house poor”.
2. What’s your plan for the future?
Before you get any type of loan—including a mortgage—it’s important to look to the future. Having a clear plan for the years ahead can help you make the right choices for current you AND future you.
Planning to grow your family in the near future? Does the house that you’re hoping to buy have space for that? If interest rates rise again in the coming few years, will you still be able to afford to pay the mortgage?
The more you can plan ahead, the better.
3. What’s your exit strategy?
Yep, it’s possible to break your mortgage. But what does that even mean?
If you need to renegotiate your mortgage before the end of your term, you are breaking your mortgage. If you have an open mortgage, you might not face any consequences. But, if you have a closed mortgage, you normally face a monetary penalty, sometimes in the thousands.
Each mortgage is different, so it’s important to understand what the penalty will be on your mortgage if you break your term.
The average five-year mortgage is broken in less than three years. If you aren’t sure where you’ll be in five years, it might be better to sign a shorter term. It can be more expensive to sign for two or three years rather than five, but it could end up saving you money in the long run.
4. Who are you working with?
When you’re buying a home, you can expect to experience a full cycle of emotions. It starts with feeling excitement, but can quickly transform into feeling stressed and overwhelmed as you navigate the ins and outs of homebuying. But with the right support, you’ll get back to feeling excited and fulfilled by your decision.
It’s important to have the right people on your team—people who understand what it’s like to go through this cycle of emotions, and who know how to help you through it. Not all mortgage lenders are created equally—and no two homebuyers have the same needs.
You want to find a lender that not only has the products and solutions you’re looking for, but who is also willing to ask you the tough questions to ensure you’re making the right choice for your financial situation—both today and in the future.
Connect with us.
At connectFirst, we’re relationship builders. We’re here to help you find the best products and solutions for you, because we take the time to understand your situation. We’ll help you make the big decisions now so you can feel secure in planning for the future.
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