Saving for our second home has been a lot trickier than saving money for a down payment on our first house. The first time around, we knew we had one year to save up for a down payment as the builder constructed our house in a new Florida subdivision. We had an exact number in mind because we locked in the price of our home during that one year wait. According to a recent article by Credit.com, saving up a down payment is just one piece of the puzzle when buying a home. Having a good credit score is also important. A good income and assets also play a role in the process when trying to qualify for a good mortgage loan. Since I work in an unpredictable line of work in the media industry, we thought it would be prudent to pursue our step-up home purchase while I’m still employed full time.
Selling our home now or later
The first decision we had to make as step-up homebuyers is whether or not to sell our current home. If we save up 20 percent for a down payment, we won’t have to pay private mortgage insurance. We also have more flexibility to keep our current home, using it as a rental property. If we have to sell our home to have money for a down payment, the timing will be trickier. We could risk selling our old home and still not finding the right new home. According to Credit.com, most people who take out conventional loans put 20 percent down. It also means a lower mortgage payment.
Having money in reserve
The Credit.com article points out home buyers also need to have money in reserves. Most lenders want the equivalent in two to six months of housing costs, including mortgage, taxes and insurance. We are using our emergency savings account for our “reserve fund.” If we can’t afford to save up enough money in reserves, we know it’s not the right time for us to buy a step-up home. If we reverse our decision, we can always take our extra money to pay down our current mortgage.
Paying for home inspection
Other costs associated with buying a new home include inspection, appraisal and moving costs. Based on past experience, I know it’s ideal to have the seller pay much of the closing costs. However, in today’s real estate market, it’s more of a seller’s ballgame. The only exception would be if we decided to purchase a new construction home since most homebuilders throw in closing costs if we use their specific lenders.
While we still haven’t found the right step-up home that meets all of our wish lists, my husband and I are preparing for our next big real estate purchase. We are maintaining a good credit score while putting money aside. Our only sense of urgency stems from the fact interest rates appear to be headed up.
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