Attention: You are now leaving a Wintrust Community Bank website.
Read articles about finances, saving and community news.
Our team of experts is ready to help you manage your wealth.
Access all the commercial banking resources your business needs to succeed.
June 01, 2018
June 01, 2018
Are you thinking about buying a home? It’s an exciting time in anyone’s life, whether you’re a first-time homebuyer or a seasoned real estate pro.
No matter how much experience with home-buying you have, you could benefit from taking a step back and ensuring you’ve fully thought about every angle of the process — and the responsibility you’ll take on when you sign the contract and get the keys.
Before you start browsing the MLS listings for your dream home, make sure you consider the following three questions — and feel confident about your answers.
If you’re like most people, you probably don’t know what you’ll do for dinner next Tuesday. Knowing what life will look like in five years, therefore, sounds like an impossible feat.
But don’t worry: you don’t need to know with absolute certainty what you plan to do. You just need to have an idea. Considering the possibilities can help inform your decision about buying a home.
Thinking about this now, before you get into a house that’s not the best fit for your long-term plans, is an important part of the process. You might want to consider things like:
People tend to get the most (financial) value from their homes when they plan on owning the property for the long-term. If you’re not sure what life looks like in five years, but are set on buying, just be aware of the risks — and think through potential “Plan Bs.”
For example, would you be open to the possibility of moving out of that particular home and renting it out instead? Would you be okay if you only broke even when you sold the home?
Don’t necessarily rely on a lender to tell you how much you can borrow. Only you—not a lender—can assess your finances in a holistic way to judge how much money you can borrow.
Run your own numbers. Factor in things like an estimated mortgage payment, taxes, insurance, and other costs like HOA fees, closing costs, and other expenses you might need to pay upfront.
You’ll also want to consider how much your house will cost you on a yearly basis. Estimate things like regular upkeep, scheduled maintenance, and unexpected repairs.
Don’t forget to think about what life might look like in the future, too. What you can “realistically afford” doesn’t mean “the maximum your budget can handle.”
If you max out what your savings and monthly cash flow, it will be difficult to deal with additional and unexpected expenses down the road–like a baby, a business, or going back to school.
You should plan to have 20 percent of a home’s purchase price in cash ready to use for before buying a home. This is your down payment. The more you put down, the less you need to finance — which translates into more money saved on interest fees and smaller monthly mortgage payments.
If a 20 percent down payment doesn’t feel doable, you do have some alternatives.
For one, you could just put down 10 percent. Most lenders won’t strictly require 20 percent, although they do prefer it.
You can put down 10 percent and still get a mortgage to buy a home, but the penalty will be PMI (private mortgage insurance). PMI usually costs $30-$70 per month for every $100,000 you borrow, according to Zillow.
Or, you could consider alternative mortgage programs. Conventional 30-year mortgages usually require a 10 to 20 percent down payment. But other loan types, such as FHA loans, require as little as 3 percent down.
Explore your options and talk to a lender about the different kinds of home loans available, and the requirements for each.
You can also consider working with a homeownership investment program, like Unison. Through the Unison HomeBuyer program, Unison partners with potential homebuyers to provide funding for their down payment.
Unison can match your down payment funds for an additional 10 percent (or more) of the down payment. That allows you to go to a lender with 20 percent, avoid PMI, and enjoy smaller monthly mortgage payments.
The money Unison provides isn’t a loan, so there’s no interest rates or payments required. In exchange for providing some of your down payment, Unison gets to share in the appreciation in value in your home that you realize when you go to sell or when you pay off your mortgage after 30 years.
There are countless other questions you could ask yourself before buying a home — and you should! Think through possibilities, consider all your options, and seek out the answers to anything you’re not sure about.
Knowledge is power, and it can help you make informed decisions about your home buying experience.