ARE YOU FINANCIALLY PREPARED TO PURCHASE A HOME?

High interest rates have become a nightmare for those looking to purchase a home, particularly for first-time home buyers. High home prices, low inventory, and high interest rates equal less home for your money. But does that mean you should hold off on buying? Interest rates are predicted to be higher for longer than we initially expected due to lingering inflation. Considering how well home values have held up during this high interest rate environment, it is highly likely that home values will increase when rates start to fall. If you're financially prepared to move forward with a home purchase, now may be the time to buy. While this is a challenging market, here are some must do items to make sure you are financially prepared to move forward with a home purchase.

1. Build a 3-6 months emergency fund (savings). Don’t drain your entire savings for a down payment. You should always keep 3-6 months of expenses in a high yield savings account. Many high yield savings are currently paying in the 5% range.

2. Ensure you're contributing a healthy amount to retirement. Are you saving 15-20% of your income for retirement? Are you utilizing your workplace 401k or 403b? Remember to factor these contributions into your budget when you consider buying a home. You don’t want a home purchase to impact your ability to save and invest for retirement.

3. Have at least 5% for a down payment. You don’t need to have a 20% down payment for your first home. If you have less than 20% to put towards a down payment simply be prepared for private mortgage insurance (PMI). PMI protects the lender if you default on your loan and it typically falls off when you reach 20% equity.

4. Reduce your consumer debt. Reduce or eliminate credit card debt, car payments, etc. Create more space in your monthly budget so your new mortgage doesn’t become overwhelming.

5. Work with an experienced real estate agent. I recommend interviewing at least 3 real estate agents. It's important to look at online reviews, google or zillow.com of realtors in your area. Locating a realtor that is extremely familiar with your preferred zip codes will ensure they have the knowledge and experience to achieve your home purchase goal.

6. Get pre-approved. Getting pre-approved with a mortgage lender is the first step in the purchase process. Once you know what you qualify for, you can work with your financial planner to ensure you are spending within your means.

7. Make sure this is a 5 year decision. Like any other asset, real estate can fluctuate in value. There are also costs with both buying and selling a home. If you plan to be in the house less than 5 years it likely makes sense to wait on a home purchase.