Consult Your Advisors
Meeting with your financial planner, CPA, and anyone else involved with managing your portfolio is a wise move as you begin your home buying journey. These professionals can assist in determining how much you can afford to pay for a house and can create a plan to accrue a down payment, pay down debt, or boost your credit score. Your advisors can also help evaluate various mortgage options and establish a budget to guide you in managing the costs associated with owning a home. Even if you have all your ducks in a row, keeping these financial consultants apprised of your plans is to your benefit.
To be eligible for the lowest available mortgage rates, it is imperative to have good credit. If you have a low FICO® score, your financial team can guide you on ways to increase it, which can include mechanisms to pay down existing debt and establishing a workable budget.
Saving for a down payment is another aspect of the home buying process where your financial team can be of benefit, especially if you are purchasing a residence for the first time. The more money you put down on your future home, the less you will have to borrow and the better interest rate you are likely to receive. By having a down payment of at least 20% you avoid having to pay private mortgage insurance or PMI. This insurance protects the lender in the event you default on your loan and is generally added onto your mortgage payment.
Your financial planner can be instrumental in determining just how much you can afford to borrow. Though you may be able to borrow more, purchasing a property at the very top of your budget may not be the most prudent decision. Doing so could place you in the position of being house poor – thanks to all of the unforeseen costs associated with homeownership. You will work in concert with your financial team to set a realistic price range that allows you to buy a house and also continue to work toward other long-term financial goals, such as saving for your children’s education and contributing to retirement accounts.
Your CFP can assist you in evaluating the type of mortgage that is best suited for your unique situation. The right mortgage can save you a considerable amount of money. Though most people will probably want to lock in a low interest rate with a 30-year mortgage, others may benefit from an adjustable mortgage if they will be moving or trading up to a larger home within a few years.
Your advisors will also help determine the best way to hold title once you do purchase a home. The manner in which you are vested in the property has tax and probate implications among other things and we highly recommend consulting your financial and legal advisors to choose the best option for your situation.
By working in concert with your REALTOR®, financial advisors, and possibly even your legal consultants, you should be armed with the knowledge necessary to minimize any issues that could arise from the purchase of a new home.
Once you have a sound financial plan in place, it’s time to get preapproved for a mortgage.