FTF Campaign Title face the futurePUBLISHED SEP 16, 2019

Til the Cash Cows Come Home

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Til the Cash Cows Come Home_Face the Future image piggy bank house

The Story 

Thirty-six percent of Skimm'rs are currently saving up for a house. Yay them. For the rest of us, making it a reality can be intimidating, especially if you're just at the starting line. Here's what to know if you’d like to add ‘homeowner’ to your list of life goals.

So...I’m renting. Should I think about buying a home? 

A little thing called equity (aka your net-net-net worth). A home can be a long-term wealth builder if you’re ready for it. Every mortgage payment you make builds you more and more equity. As in, how much of the property you actually own. If your home is worth $250,000 and your mortgage balance is $150,000, you have $100,000 of equity. So your equity goes up as your loan goes down — something that could help you pocket more money when it’s time to sell. Cha-ching.

Ok. You’ve convinced me. 

Not so fast. Buying a home is a mega-investment. Even if you’re not ready to pull the trigger yet, here are the boxes you should think about as you’re making your timeline… 

  • Your credit is on point. Mortgage lenders are a tough crowd. They look at your credit score when considering your loan application because it gives them a snapshot of how likely you are to pay them back on-time. A less-than-perfect score will make it that much harder to qualify for the amount you want, while a solid score unlocks the best interest rates and loan terms.

    Want to be an A+ student? Make on-time payments, pay down your balances, and pull your credit report to dispute any errors.

  • You’ve figured out your budget. Ahh, the million-dollar question. Your budget is actually less about the listing price and more about your monthly cash flow. The rule of thumb is to keep your monthly mortgage payment (hint: how much you’ll pay every month for your home) below 28% of your pre-tax income.

    So if your gross pay is $5,500 per month, you don’t want your mortgage bill to be more than $1,540. That includes interest, property taxes, and insurance. How much you’ll pay each month depends on how much you put down. A bigger down payment = a lower monthly bill.

    PS: there are also closing costs to consider. They can include anything from loan origination fees to credit report charges. These fees usually equal 2% percent to 5% percent of the purchase price. Don’t forget to tack these costs onto your home-buying budget.

  • Your emergency fund is in decent shape. When you're renting and the roof springs a leak, your landlord comes to the rescue. Yeah, not anymore. The standard rule is to save up 1% to 3% of the purchase price, then earmark that cash for annual maintenance and repairs. If you bought your house for $280,000, be prepared to squirrel away at least $2,800 extra per year.

  • Your down payment is locked and loaded. Once upon a time, you needed a 20% down payment to buy a house. Not an easy feat. Now, it’s possible to swing a home purchase with as little as 3.5% down. You read that right. (We’ll unpack loan options in next.) 

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  • You’ve researched loan options. Home loans come in all shapes and sizes. Here’s a rundown:

    • Conventional mortgages are insured by private companies. Read: you'll have to jump through more hoops to qualify. Your credit and debt are super important in tipping the scales in your favor, and you'll probably have to kick in a bigger down payment, but the rates and terms are usually better. Heads up, if you put less than 20% down, you might have to pay a Private Mortgage Insurance to your lender. 

      • FHA loans are backed by the federal government and they may let you put as little as 3.5% down. Your credit isn’t as big of a factor, either. The catch is that you’ll have to pay for mandatory mortgage insurance, so they cost more than conventional loans.

      • VA loans are exclusive to veterans and active duty service members. They typically don’t require any down payment or mortgage insurance.

      • USDA loans are around for homebuyers looking to live in certain rural or suburban areas. (Sorry, big cities are out.) The upside is that you won’t need a down payment.


Check check check. Can I start shopping around now?

First, you’ll want to be preapproved for a mortgage. Lenders take a quick look at your finances, then fork over a letter saying you've been preapproved to borrow up to a certain amount.

A preapproval letter tells sellers you're a serious buyer who's ready to get the deal done. It also sharpens your budget so that you aren't wasting time looking at houses you can't afford. To get the best deal, get preapproved with multiple lenders and compare offers before going with the best one.

Got it. I’m tying up my shoelaces…

You should also open up your laptop. Or link up with a real estate agent to research your ideal neighborhoods. Look into small things (like whether you’re on an emergency vehicle route - hiii, sirens) as closely as the big things (property value trends or nearby schools).  

Done. Keys are in the ignition...

Okay, you’re ready to start hitting up open houses. Just don’t get too attached until your inspection gives you the green light. Do your best Nancy Drew impression and be on the lookout for things like foundation issues, water damage, and mold. When you come across a home you’re in love with, put in a bid. Then flex your negotiation muscles before settling on a final price.

Found the one. When can I make things official?

Mazel. The closing marks the end of the home-buying journey. You'll wrap up any outstanding fees with your lender and sign the final papers to be bound in homey matrimony. 

That was a lot of $$$. What do I do now?

You’re not going to spend what you have left on decor, we hope. Now that you're nesting, keep up the good financial habits that got you there. Topping the list is boosting your life insurance and home insurance coverage. If the unthinkable happens to you or your partner, you want to make sure your loved ones can comfortably afford to keep the home.

theSkimm

Buying a home is a big deal. So is planning for it. But you don’t have to go it alone. John Hancock can help you get on the right track with expert advice, a plan, and tips from the pros to help get you financially ready to buy that welcome mat you've always wanted. House, warmed.

John hancock and theskimm face the future


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