When shopping for a house, most homebuyers come with a practical checklist in mind.
There must be good schools within driving distance. There have to be grocery stores within a few blocks of the place. The kitchen must have high ceilings and big windows.
You get the idea.
But for all the discussion and planning that goes into planning out your living space and putting together a good color scheme, we often don’t talk about how regular homeowners, who aren’t secretly dreaming of being landlords, can get a solid financial return on their home purchases.
If that sounds like you, then you’re in luck. Here are 4 tips that you can use to get more financial mileage out of your home purchase.
Tip #1: Plan to Live in Your Home for Years
If you have a choice between renting or buying, at what point do the financial benefits of owning kick in?
Zillow has put together a handy Rent vs Buy calculator designed to answer this question.
The basic idea here is that in order to experience the financial benefits of homeownership, you have to reach what’s known as a “breakeven horizon”. If you can stay in your home until you reach that point, then you’ll have reached the point where you’re saving money by owning.
So, using the calculator, you’ll find that if you buy a $300,000 house with a 20% down payment, your breakeven horizon is 2 years and 3 months.
In short, the moral of the story for current and future homeowners here is that if you want to experience the financial benefits of homeownership, you can build more equity and save more money by buying long-term.
Tip #2: Be on Top of Local Real Estate Trends
“Location! Location! Location!” isn’t just advice for assessing the neighborhood you’re moving into. On a local, state, and national level, your location can have a profound impact on what’s considered a reasonable asking price.
And of course, most people intuitively understand that you can’t go to San Diego or New York City and expect to buy a mansion for $150,000.
But here’s the thing:
Understanding local real estate trends isn’t just about being aware of overall price trends in your community. It’s also about knowing what the appreciation value might look like in a few years and being able to assess what property types or neighborhoods are selling best.
Knowing these sorts of details not only makes it easier to spot discounts. It also lets you avoid overpaying.
Tip #3: Have Solid Credit
It’s easy to focus on price when you’re shopping for a home. But the number that has the biggest effect on your monthly mortgage payment is actually your credit score.
Here’s why:
Possibly one of the biggest factors that will impact your month-to-month expenses is your interest rate. And while it’s definitely possible to purchase a home without a top-of-the-line credit score, CNBC reported that future homebuyers should aim for a credit score of 760 to qualify for the best interest rates possible.
When you’ve got a 20 or 30-year mortgage ahead of you, even one or two percentage points can make a massive difference in terms of the money that’s left in your pocket.
If you’ve ever wondered why personal finance experts are always recommending that you have a strong credit score before your mortgage application, this is why. It’s because it can save you serious money over the long run.
Tip #4: Take Your Time
In the rush to buy a house, it’s easy to get excited about the first property you find that happens to satisfy your checklist.
But even though there are new listings hitting the real estate market every day, bargains are often the result of luck and timing.
To be fair, sometimes the first home you see really is the best one for you. But if you go into it with the intention of taking your time and exploring multiple properties, you’re more likely to find hidden gems in your housing market.
Conclusion
When you get right down to it, buying a home is a balancing act.
On the one hand, you want to find a place that you could feasibly see yourself spending years of your life in. But on the other hand, you also want to make sure that you’re doing the right thing for your finances.
Fortunately, with the help of these 4 tips, you’ll be well on your way to turning that amazing house into a financially-sound investment . . . even if you’re not a professional real estate investor.
