We finally closed escrow on our rental condo this past week. It was a daunting process that was made even more difficult when escrow fell out and we had to scramble for another buyer. Now that that is behind us, it's time to think about listing our current home and looking for our dream home. My Pinterest board is filled with so many things that I would want but first, we need to figure out how we are going to be able to afford our dream home.
While we know to aim for putting 20 percent of the purchase price of the home as a down payment to avoid mortgage insurance, the amount can be a bit shocking as we are shopping in the Southern California market and specifically in my in-law's neighborhood where a tear down/fixer upper runs about $900,000+. I think the neighborhood having the top school district plays a role in the listing prices. So we have to decided whether we want to take on this huge task or save up enough to just buy the perfect move-in ready home. I want to be well informed and knowledgeable as well as financially smart so I'd like to share my tips with you.
Find out How Much Home You Can Afford
The rule of thumb is to look at homes that are 2.5 times your annual salary because you don't want to spend more than 28% of your gross monthly income on housing. I would actually stretch this into 3-3.5 times in our ideal neighborhood because there is nothing available otherwise. You can even use an online mortgage calculator to find out an estimate of what you can afford.
*I've been watching this home building process (above) for over a year now!
Start Putting Away Money Towards Your Down Payment
This is essential. Save a little here and there for your dream home fund. You will be surprised at how much you can save by limiting certain luxuries as daily coffee/pastry runs, drinks while dining out, pretty shoes that you will wear once, toys that will be collecting dust after just one play, etc.
Maybe even make a visible "pot" where you stash all the $5 or $10 bills you happen to have in your wallet.
Make Sure Your Financial History is Strong
There are so many variables into buying a home and getting a loan (unless you plan on buying all cash!) such as income, assets, job history, credit score, total debt and how much you’re willing to put down as a down payment.
Order copies of your credit report and go through it carefully to take care of negative items that may affect your home purchase.
Get Pre-Approved for a Loan
This goes hand in hand with how much home you can afford. When you get pre-approved, you will know what homes you can shop for (and make payments on) without getting frustrated after finding the perfect home that you eventually cannot buy. Capital One's new online resource is packed full of information regarding loans available to you, terms you should know, documents you need to apply for a mortgage and much more.
Don't Rush the Process
Unless you are in some sort of dire situation where you must purchase a home asap, there is no need to rush the process. Take your time and gather all the necessary information for making most likely the largest purchase of your life.
Learn more about Capital One Home Loans and how they can help you get into your dream home by visiting https://www.capitalone.com/home-loans/direct/learning-center or calling 855-900-8886.
We've already been receiving comps for our current home from our realtor (along with a nifty knife for closing on our rental) so I've been stalking the neighborhood For Sale signs!
Are you in the market for a new home? Or are you saving up for your dream home purchase?
I was selected for this opportunity as a member of Clever Girls and the content and opinions expressed here are all my own.