6 Strategic Financial Planning Tips to Consider When Buying a House

Today, the homeownership rate in the USA is just less than 66%. As of 2022, 60% of homeowners have a mortgage.

Just over half of all homebuyers are first-time buyers, and half of the 4.5 million new home loan applications were from first-time buyers.

This is welcomed news in the real estate market, as house price growth has been sluggish.  Whether you want to make the most of the flat condo values or secure an older home for a reasonable price, there are conditions to securing a home loan, and arguably, the most challenging is the downpayment.

Planning Your Financials For Homeownership

This property blog post considers the strategic financial planning you can do to get the home you want when you want it.

1. Start Saving Ahead of Time

Unless you have come into some money like an inheritance,  you must work out how to acquire a sizeable downpayment for your first home.

You’re never too young to start a savings account and put away a regular amount every week. Saving doesn’t come easy to everyone. It’s a learned habit, and one book we recommend you read to form the habit is The Richest Man in Babylon by George S. Clason. The first edition was printed in 1926, and nearly 100 years later, the book remains valuable for everyone needing to create a savings habit.

When you receive an income, saving 10% will build up wealth over time. Imagine starting your savings plan with your parents’ allowance—how much would you have in your savings today?

Suppose you saved $10 a week for 10 years and received an average return of just 7%. You’d have $7129. Now consider that if you had kept the savings going at the same rate for another ten years, they would be worth $21,154. That is a downpayment for a house.

It’s one strategy to save money and another to make it make money, achieved when invested. Some options for growing your savings include:

• Fractional shares
• Certificates of Deposit
• Stock market
• 401(k)

It’s important to remember that investing always comes with risks and no guarantee of a specific return. It’s crucial to conduct thorough research and consider seeking advice from a financial advisor.

2. 20% Down Payment

Set aside a down payment of at least 20 per cent before buying your dream house. Firstly, you can get a lower interest rate and be shielded from private mortgage insurance (PMI). Some lenders require the PMI to protect from loan defaulters.

3. Have an Emergency Fund

Buying a house usually comes with extra unplanned expenses. Your budget, costs, and other miscellaneous bills automatically increase when you transition from a renter to a homeowner.

To avoid being caught unaware by surprising expenses, ensure you have an emergency fund to use in times of need. These funds will keep you running in the meantime, even if your source of income takes a sudden hit.

4. Evaluate the On-going Maintenance Cost

What will the monthly or yearly cost of maintaining your house be? It will be foolish financial planning if the cost of keeping your home exceeds 1% of the total cost of the house. However, it is just a rough estimate for you to be prepared to anticipate some costs, and this does not mean that you will keep spending that amount on your house maintenance.

5. Use Mortgage Calculators

Mortgage calculator tools allow you to calculate the total amount you will pay for your mortgage over a period. With this tool, you can plan and set aside funds towards buying your first house. With this, you have peace of mind and minimal pressure since all expenses have been considered beforehand.

6. Put the Furnishing Costs into Consideration

Another consideration when buying a home is furnishings. How will you furnish it, and what will it cost?

You may have some furniture from your existing rental, but you will still need to spend some money to furnish your new house to your taste. Ensure you visit two or more home furniture stores to evaluate the cost of moving into a new home.

Final Words

Buying a new house is usually a very stressful process that requires extensive research and knowledge of strategic financial planning to secure the home you can afford. Ongoing costs of homeownership include repayments, rates, insurance, and maintenance.

With all the tips described above, you are now prepared to go through the purchase process with less hassle and become a happy new homeowner.