One of the most important decisions a couple will make is the choice of a first home. Choosing well can ensure quality schools for the kids, stability in family and other relationships and opportunity. Choosing poorly can lead to financial disaster. Financing the home purchase properly is almost as valuable as buying the right home. Here are some tips to help you make the right choices:
- Choose a home in a neighborhood where people generally earn what you earn or a little bit less. By doing so, you’ll find your neighbors drive cars like yours, struggle with the same budget questions you do, vacation where you do, etc. If you move to a neighborhood where everyone has a bit more money, you and your kids are likely to feel poorer not richer, constantly struggling to buy a car as nice as the neighbor’s car or to vacation like they do. Save yourself the drama.
- Choose a home with convenient access to public transportation. You may not think you will use it now, but if gas prices spike or your income changes, using public transportation may become the solution to an otherwise hefty budget problem.
- Choose a home where you can walk to some of your most routine destinations such as, school, grocery store, and other conveniences. Having the option to walk for those errands could save you money, keep you fit and help protect the environment.
- Choose a home that will be adequate for your family for a long time, perhaps forever. The secret weapon in finding a home that will last a long time is often an unfinished basement. That open space makes ample storage today and in the future—when resources permit—you can turn it into beautiful finished space for more kids and/or more luxury.
- Don’t borrow more than you think you can afford just because the bank approves you for a larger amount. You know your spending habits and your needs. Don’t fudge with the bank so you can borrow more than they would otherwise allow; the bank’s underwriting guidelines are generous enough. Banks are in the business of making loans; they want you to qualify. Fit your home to the available financing.
- Make the largest down payment you can. Making a down payment of less than 20% of the purchase price will increase the cost of borrowing the balance, so save and prepare so that you can make the largest down payment possible. If you can comfortably put more than 20% down, do it. The smaller your mortgage—the better.
- With mortgage rates at all-time lows consider a shorter term mortgage. It wasn’t too long ago people thought 8% was a reasonable mortgage rate. The payment on a 2012 mortgage at 3.75% for 15 years is the same as the 8% mortgage spread over 30. By putting yourself in a position to be mortgage free in fifteen years instead of 30, you create possibilities for your family that may far outweigh an extra 600 square feet of living space.
The happiness you will experience in your home will have much less to do with the house than the people in it. If you buy a home that stretches you financially, you’ll add stress and anxiety to your home. If you buy a home you can easily afford and have virtually no risk of losing, you’ll invite peace, tranquility and stability into your home.