Are you Financially Prepared for a Home Loan?
Certain things in life are done one step at a time. Putting on your socks before your shoes for example. There is usually a good reason for the steps involved. Before you jump headfirst into home ownership take a look at your whole financial picture. No one can do this but you. No one else will care how the purchase of a home will affect your particular situation the same way you will.
What Are Your Spending Habits?
Most people have a spending pattern. They earn an income each month and either spend all of it, some of it, or maybe even more then they are earning. The average American saves less then 5% of their take-home income. This is considerably less then the average industrialized country. If you intend to buy a home, it is best to be the type of person who consistently saves more than 5% of their income.
First, you need to save money for a down payment. You can try to obtain the money you need from relatives. Unless you are putting down at least 20%, most lenders will require that you have at least 5% of your own money into the purchase. With some relatives there can be strings attached to a gift, so make it clear up front if there is anything expected of you.
After you buy your home there will be additional expenses each month. If you have already developed a pattern of setting aside money to go into savings, it will be less difficult to come up with the extra money needed for these additional monthly expenses.
Collect the data
Go over your spending habits for at least a 3-month period. Analyze what you are spending in a typical month on housing, clothing, and other miscellaneous expenses.
Once you’ve collected your spending information, take into consideration what new costs will occur after you purchase the home, such as transportation.