What can I do to better prepare for a home purchase down the road?

I am currently studying to become a teacher. I plan to own in a home within the next five years. I don't know what the market is like, but by then, my children will be about ages 8 and 5. What exactly should I start doing now to better prepare me in the long-run to buy a home? I have started to work on my credit as well.

Financial Planning, Real Estate
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July 2017

I think the best advice I can give you is: "Look at your home purchase as an investment, not a dream house". We have been conditioned to want to buy our dream home. Most people make that mistake, including yours truly. Many years before I became a financial planner, I bought my dream home, only to figure out that a few years later, trends changed and my dream home wasn't as great anymore...

If you look at your home purchase as an investment, no more than 25-30% of your net income should be spent on your household payments (mortgage, real estate taxes and insurance), preferably under a 15-20-year mortgage. Which means that if you clear $4000/m, your household payment shouldn't be more than $1000/m. This will enable you to avoid being house poor while being able to save money. A short-term mortgage (shorter than 30-years) will ensure that more of your monthly payment goes to your principal, enabling you to build equity quickly.

Before you buy your home, make sure you save 3-6 months-worth of expenses. Being able to do so will add security to your plan. If something goes wrong early in your home ownership, you should be able to pay to fix the home out of pocket instead of using debt.

Once you own the home, you should also create your own "HOA" fund. Nobody likes to pay HOA dues, but these associations normally do a good job at planning for future expenses. I recommend you do the same. Build a "HOA" fund by transferring $100-200/m into it for future renovations need. 

I hope this will help you get prepared when purchasing your home and maintain it as well.

July 2017
July 2017
July 2017