Personal Finance 101: Buying Your First Home – Are You Ready?

By Brittany Mollica

With mortgage rates at historically low levels, you might feel compelled to browse Zillow in search of your perfect first home. I can relate – my boyfriend and I just closed on our townhome in May. 

Going through the process firsthand has caused me to think about how to know when you’re ready to make the leap from renter to homeowner. Spoiler alert: don’t simply do it because mortgage rates are attractive or you’ve heard “it’s a good investment.” Consider the following questions to gauge whether you are truly ready, financially and emotionally:

Which neighborhoods would you consider living in?
Before you start looking at specific homes, you may want to consider exactly which neighborhoods you would be happy living in. Think about school districts, your potential commute time and how close you want to be to downtown or other landmarks. Setting physical boundaries like this can be helpful in narrowing (or expanding) your search and will make it easier for your real estate agent to suggest properties to you.

Have you determined what features of a home are most important to you?
Similar to considering neighborhoods, it’s helpful to think about the most important features in a home, as well as what might be a deal-breaker. For example, how important is it that you have a deck, brand new kitchen appliances, or a two-car garage? Make a list of your top priorities but know that you will probably need to be flexible. Your first home might not check every box, and that’s okay!

How much home can you actually afford?
The highest mortgage amount that you qualify for might be very different from the amount that you can comfortably afford each month. Talk to a mortgage broker about the estimated monthly payment for different levels of debt so you can get a sense for how it will fit into your monthly budget. And when you’re thinking about your monthly budget, don’t forget to consider the monthly escrow payments (to cover real estate taxes and insurance), potential HOA dues, and whether or not you might hire professionals for ongoing home maintenance needs. In the end, you don’t want to waste time looking at homes that are outside your budget, nor do you want cash flow to be too tight once the home is yours.

Do you know your (and your partner’s) credit score?
Having a great credit score can help you qualify for the best mortgage rates, and you want to avoid any last-minute negative surprises during the application process. Because of this, it’s smart to proactively check your credit report each year. This way, you’ll have time to correct any errors and work toward improving your score over time. You can get your credit reports (free) and your credit score (small fee) at
Another important note: if you’re applying for a mortgage with someone else, make sure they’re also diligent about monitoring their credit score.

If you’re buying a home with your significant other, are you able to comfortably talk about your finances?
A house is a huge purchase, so it’s important that you and your partner are able to talk about your personal finances. Do you have the same attitude towards spending money? Have you talked about your individual financial goals? Do you know their income, savings, and general financial position? Talking about money can be hard and you don’t need to have the same opinion with them on everything, but having these conversations makes working towards a common goal (ie: owning a home) so much easier. Remember, if the conversation is hard now, it's only going to be harder after you’ve committed to a major purchase.

Do you have enough cash saved up to make the down payment AND cover unexpected upfront expenses?
While you can avoid the extra monthly expense of private mortgage insurance by putting 20% down, you also want to have enough cash left over for the variety of expenses that come with home purchases. This can include inspections, repairs, new furniture and appliances, and moving costs. Did you know that just a washer and dryer combo can easily cost over $1,000? Lesson learned. 
Bottom line: you don’t want to spend all of your cash reserve at one time. But the longer you plan to own your home, the more practical a purchase it becomes.

If you have made it this far, congratulations – you just might be ready to buy your first home! Home ownership is an exciting life milestone and while it certainly isn’t a purchase that you want to rush into, it can be a great long-term investment. And yes, currently (in the summer of 2020), interest rates are historically low, which could mean long-term savings if you buy now. 

Your financial advisor can also help you consider how buying a home might fit into your broader financial plan. Please reach out to us with any questions!

This material is provided as a courtesy and for educational purposes only.  Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation. 

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