Buying a home is one of the largest and most important financial decisions most people make in their lifetime, and it can be a stressful and overwhelming experience. If you’re considering buying a home, here are five tips to help you with this decision: 

  1. Check and improve your credit score. It’s never too early to check your credit score and start to improve or build credit. The most important factor that goes into determining your credit score is payment history, so don’t miss any credit card or loan payments, and always keep your credit card utilization below 30%. 

  2. Shop around for a mortgage lender. Before looking at homes, take the time to talk to at least three mortgage lenders and compare interest rates as well as the loan options offered. Choose a lender that you feel is a good fit for you, is responsive, and seems to have your best interest at heart. 

  3. Determine the 50% “needs” portion of your income. According to the 50/20/30 budgeting rule, no more than 50% of your after-tax income should be allocated to your “needs”. Needs include housing, food, health care and transportation. After determining 50% of your after-tax income, estimate the amount that you and your family will spend on food, transportation, and health care. The remainder of the 50% should be the maximum amount allocated for housing (regardless of what your lender says you qualify for). Make sure to include not only the mortgage payment but also insurance, utilities, property taxes, and repairs and maintenance in your total housing expense.  For more information about the 50/20/30 budgeting rule, please see this post. 

  4. Save for your downpayment. After calculating the maximum home price that’s within 50% of your income, multiply this amount by 20% and create a savings plan to achieve your savings goal in a timely manner. If saving 20% isn’t a realistic option for you and your family, keep in mind that you’ll need to pay an additional amount for mortgage insurance each month and talk to your lender about your mortgage options. 

  5. Think ahead. Due to the high costs involved in purchasing and selling a home, it’s best to stay in your home for 3-5 years to break even on your mortgage. Consider the next 5 years of your life when considering which home to purchase. Some questions to ask yourself: 

  • Do you plan to keep your current job for the next 5 years, or will you be searching for a new job? 

  • Do you plan on having children or expanding your family? 

  • Does the location fit your lifestyle needs?  

  • Are there any large improvements that will need to be made to the home in the next 5 years such a roof, foundation repair, water heater, termite damage or water damage?  

Think about the answers to these questions as you look at home options. For example, if you plan on having children in the next few years, it may be wise to choose a home with an extra bedroom and larger yard or to consider the school district and location of nearby schools. 

Finally, keep in mind that purchasing a home is one of the most important decisions you will make in your lifetime, so take your time and only purchase a home that you feel will allow you to comfortably live within your budget.