Many Americans build a large portion of their lifetime wealth through home ownership. In fact, for the average household, home equity can make up 50-70% of net wealth (Brookings Institution). With a sizeable down payment, standard 30-year mortgage terms, and on-going upkeep, home ownership is a meaningful financial commitment.
Here are a few tips to consider before you start visiting open houses - especially if you are pursuing home ownership with a partner or spouse.
Establish your max budget - really!
- Make sure your total mortgage, taxes and insurance don't make up more than 28% of your gross monthly income. For example, if your household income is $20,000/month then your payment should be no more than $5,600 max.
- If you can't put down 20% of the purchase price, consider holding off until you can, or consider a lower cost property.
Align on your "must haves" ahead of time
- Make a list of things you want in a property (like a garage or a backyard) and - here's the important part - rank them in order of priority.
- Purchasing with a partner? Independently list your top 10 things then compare and discuss why you ranked one feature over another.
- Use the findings from the exercise to help you communicate to your realtor what's most important and help narrow down properties.
Find a realtor you trust and let him/her do their job
- Trust the professional. A good realtor will guide you along the way and help you understand market competition and value.
- Tour some homes live with a realtor. Seeing several homes will help you realize what you do and don't like so you can make an informed decision.
Purchasing a home is a large financial decision but can also be an emotional process. Staying organized and putting in a little work ahead of time will help you find that right fit both financially and emotionally.