Buying requirements

First, you need to figure out how much you can afford to spend on a house. A quick rule to follow is the $30\mathrm{\%}$‍ recommendation. This rule means you shouldn't spend more than $30\mathrm{\%}$‍ of your monthly income on housing costs. So, if you earn $\mathrm{\$}\mathrm{5,000}$‍ a month, you should try to spend no more than $\mathrm{\$}\mathrm{1,500}$‍ each month on housing costs.

A good credit score is another key part of home buying. It can affect what kinds of loans you'll get and the interest rates you'll have to pay. If your credit score is high, lenders will see you as less risky, and you'll often get better loan terms. If your credit score is low, it may be better to wait a bit until it improves before starting to look for a new home.

Once you are ready to you start looking at homes, it's a wise idea to get pre-approved for a mortgage. This process involves providing a bank or lender with a snapshot of your financial situation. After reviewing your income, savings, and credit report, the lender can then tell you the mortgage amount for which you qualify.

Let's say you get pre-approved for $\mathrm{\$}\mathrm{300,000}$‍. Now, here's where you need to be careful. Getting pre-approved for a certain amount doesn't mean you should automatically aim for a house in that price range. Remember the $30\mathrm{\%}$‍ rule from earlier? It suggested that if you make $\mathrm{\$}\mathrm{5,000}$‍ a month, you should aim for total housing costs no more than $\mathrm{\$}\mathrm{1,500}$‍ a month. Depending on your loan terms, a $\mathrm{\$}\mathrm{300,000}$‍ mortgage could result in monthly payments higher than $\mathrm{\$}\mathrm{1,500}$‍. In this case, despite your pre-approval amount, it would be better to aim for a less expensive house to keep your budget balanced.

Pre-approval does not cost any money and does not require that you get a loan. It helps you avoid homes that are too pricey and could save you the heartache of falling in love with a home, only to not be approved for it later. It's a smart move to make and should be done before looking for a new home.

Now that you have been pre-approved and have found the house you like, it is important to look at all the costs you will be required to pay before you get the keys to the house.

Let's talk about your down payment. The down payment is the upfront amount you pay towards your home. The amount can vary based on many factors including your credit score, the type of mortgage loan, and the lender's policies.

Traditionally, a down payment of $20\mathrm{\%}$‍ was standard, like a $\mathrm{\$}\mathrm{40,000}$‍ down payment for a $\mathrm{\$}\mathrm{200,000}$‍ house. However, these days, it's common to see required down payments as low as $3\mathrm{\%}$‍ to $5\mathrm{\%}$‍ for conventional loans. Some special loans like VA loans for veterans and active military might even offer $0\mathrm{\%}$‍ down payments, although these are less common. So, more than likely, you will be asked to have down payment money ready before moving in.

In addition to the down payment, you will be asked to pay closing costs. Closing costs are the various fees you pay when getting your home loan and finalizing the home-buying process. These costs can be varied, based on the type of property you're purchasing, where it's located, and what type of loan you choose.

For example, for that $\mathrm{\$}\mathrm{200,000}$‍ home, you may pay between $\mathrm{\$}\mathrm{4,000}$‍ and $\mathrm{\$}\mathrm{10,000}$‍ in closing costs ($2\mathrm{\%}-5\mathrm{\%}$‍ of your home price).

After buying a home come the regular homeownership costs. Your bank or lender will require that you buy homeowner's insurance. This insurance pays for damages to your home and can provide liability coverage against accidents in the home or on the property.

If you're buying a property within a housing development, you might need to pay Homeowner Association (HOA) fees. These fees cover the upkeep of common areas and any amenities. If your neighborhood has a pool, walking trails, or nice playgrounds, your HOA fee is what pays for them.

Private Mortgage Insurance (PMI) is another required cost you might face if your down payment is less than $20\mathrm{\%}$‍ of the home’s purchase price. PMI protects the lender in case you default on your mortgage.

Finally, remember to budget for yearly property taxes. Your property tax amount is determined by your local government and is usually based on the value of your property.

Typically, your bank or lender can roll all these costs together and add them to your mortgage payment, so that you do not have to worry about paying them. This service is called escrow.

Buying a home is big life event, but it doesn't have to be scary. You can keep things simple by working out your budget, saving for a down payment, and remembering the extra costs for insurance and fees. Good luck with your home-buying journey!