Complicated Financial Goals
Posted By: Dr. Frugal in Budget on 08/19/2007 at 12:30:36
Sometimes setting goals for finances is tough--not as easy as setting aside $1000 for a new TV. Today we're going to look at the difficulties of something more complicated--buying a house. Before we get started you need: price-range you think you can afford, good credit, a down payment, closing costs, sufficient income to afford your new mortgage.
All of these items are important because they help you become specific in your goals and give you a list of tasks that is much more manageable in achieving the goal.
The first step is determining the price range of the house you want to buy. This decisions is not set in stone and you might discover other factors that will make you reconsider how you can/have to go. Secondly, you need good credit to buy a home. There are several loan programs for people with problem credit; however, you will pay a much higher rate than borrowers who maintain a good credit score. Your task is to identify your credit score and, if it's not great, improve it. Taking some time now will make an enormous difference in the interest rate you can get and how much you can borrow.
If you know the price range of your new house as well as your credit score, you can figure out how much you will need as a down payment. The more you can put down, the better the deal you will typically get from lenders. It's much better to delay your purchase until you can save up for a good down-payment. The lender will also look at your income and other debts to ensure that you will be able to pay the monthly mortgage when it's due. You won't get the loan if the bank can't determine how you're going to repay them.
When it comes time to actually buy the house, you'll discover the least palatable part of the home buying process: fees. Depending on the circumstances of the loan, closing costs could be many thousands of dollars. Even after the down payment, you must have enough cash left to cover the closing costs.
If you don't have a plan to adjust for these unknowns it will make a process such as this many times more complicated than it already is. Knowing all you can and be as prepared as possible is a solid step when undertaking large investments such as this one.
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