Here are seven bits of wisdom from economists and financial planners for anyone contemplating a home purchase today:
- Old-fashioned basics are more important than ever. The safest way to purchase a home is to put down 20 percent on a fixed-rate, 30-year (or less) mortgage. To be truly conservative, don’t spend more than 35% of your pretax income on mortgage, property taxes, & home insurance payments.
- Don’t become overconfident about income growth. Even though buyers in their 20s and 30s will likely see their incomes grow more quickly than previous generations, it is important to act sensibly when borrowing.
- Anyone contemplating adding children to the family should calculate whether they could live on one income because having both halves of a couple work may turn out to be impractical.
- Include a maintenance budget. Even new homes need upkeep and repairs. Map out expenses.
- Buyers who can’t afford their dream home now should opt for a starter home where they can save money each month for what they really want. Buy the best, cheapest house you can afford.
- Consider a property that can be expanded and improved down the road when money is available. Moving incurs a lot of additional expenses. Try to renovate your existing home or buy a house with potential to avoid the need to move.
- No two buyers are the same, but they should all feel confident with the loan they enter into, no matter the size of the mortgage. Make sure you can sleep soundly regarding your new mortgage. If you are tossing & turning at night thinking about it, it’s probably too much. Apply the “Sleep on it” rule.