How to Financially Plan for Purchasing a Home

Home ownership is a huge step and can be very exciting and nerve-wracking at the same time. Many individuals dream of the day that they will purchase their first home and enjoy all the perks and amenities of doing so. However, in order for the process of purchasing a home to be stress-free and as smooth as possible, it is very important for the soon-to-be homeowners to engage in some very precise and careful financial planning. Home ownership is not something to be rushed into. It is very important for the buyer to be financially prepared and comfortable with the decision they are making. Thankfully, there are some easy steps that one can take as they financially plan to purchase a home.

Consider Your Debt-to-Income Ratio

Before most people are able to purchase a home, they must first consult with a lender of sorts to see if they qualify for a loan. Nine times out of ten, an individual’s debt-to-income ratio will significantly impact whether or not the lender is comfortable with granting a loan to the aspiring homeowner, affirms Realtor.

In layman’s term, a debt-to-income ratio takes an individual’s debts and compares the amount to their income. In the best cases, one’s income outweighs any debts which they might have. After the lender assesses the individual’s debt-to-income ratio, they will determine whether or not the individual qualifies for a loan. If they do, the amount of money which they can borrow will also be determined by the lender.

Nine times out of ten, a 41% to 43% debt-to-income ratio is the highest that lenders will permit. Therefore, this is a very critical financial aspect that each individual should be aware of prior to moving to purchase a home.

Budget and Save Money Accordingly

There are countless expenses associated with homeownership. Many of these fees include, but are not limited to, repairs, home insurance, mortgage, maintenance, upgrades, and more. Of course, the specific numbers of the aforementioned expenses will vary from person to person. The amount of the allotted loan, the cost of the home, and various other monetary numbers will depend on the number of funds which need to be saved.

However, budgeting and saving money accordingly is always important, especially when one is preparing to make such a huge purchase. The proper financial planning saves people so much stress and grief that often comes along when one’s ducks are not in a row.

A Final Word

Purchasing a home is often a complex and very involved process. In addition to taking debt-to-income ratio into account and budgeting/saving accordingly, many people choose to contract the services of a financial advisor before they move forward with purchasing a home. While each individual can make their own financial moves and decisions, sometimes working with a professional can provide some added insight and help with the decision making process.

At the end of the day, any person who is ready to purchase a home deserves a smooth and stress-free process!

Authored by Gabrielle Seunagal

 

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