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3 tips every homebuyer needs to know

Key takeaways

  • Ask yourself, "How much house can I afford?" Consider not just the purchase price but also the impact to your monthly income.
  • Get your finances in order. Check, and maybe even improve, your credit score. Figure out how much you have for a down payment.
  • Make sure you're truly ready to buy. Owning a home is a major responsibility that represents more than just a financial commitment.

Buying a house is a big life step for anyone. When you buy, you not only move somewhere new—you also typically make a deeper commitment to the community or location you buy in. And financially, it is no decision to take lightly.

Whether you are hoping to buy your first house, a condo in a new city, a tiny home, a mansion, or anything in between, here are some tips from Fidelity we think you should consider.

1. Ask yourself, "How much house can I afford?"

There are many numbers to consider when buying a home. Two important things to focus on when it comes to how much house you can afford are the purchase price of the home and the total monthly cost of ownership.

A good guideline is to consider limiting your target purchase price to somewhere between 3 to 5 times your annual household income. If you have significant other debt, it might make sense to target the lower end of that scale. If you're otherwise debt-free, you might be able to afford a more expensive home.

As you start narrowing your search down to specific properties, take a closer look at the total monthly cost of ownership of each home. This number may vary for everyone, but another guideline is to limit housing costs to 30% of your monthly income. That includes not only your mortgage, but also real estate taxes, homeowners insurance, maintenance, and money for unexpected repairs. That can allow you enough wiggle room in your budget to work toward your other financial goals (like retirement, or maybe even a grander vacation!).

To learn more, read Viewpoints at How much house can I afford?

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2. Get your financial "house" in order

It may sound obvious, but it is important to plan ahead financially if you are considering buying a house.

Start by figuring out how much you might be able to put toward a down payment. Think about any upcoming sources of cash you might be able to use, such as a bonus, tax refund, or even help from family. But try to leave your emergency savings untouched. Keeping that extra cash on hand will help if something comes up (like an urgent repair on your new home).

Early in the process, you should also look up your credit score and learn what you might need to do to improve it. If you're buying a property with your partner or significant other, make sure they do the same. (To learn more about how to improve your credit score, read Viewpoints at 8 ways to help improve your credit score.)

Finally, consider getting preapproved for a mortgage before you start getting serious about your home hunt. Preapproval can help you better understand how large of a mortgage you're likely to qualify for, and can put you in a stronger position once you're ready to make an offer.

3. Make sure you're actually ready to buy

Buying a home is a significant financial commitment with many transaction costs including closing costs, broker fees, and moving expenses. So we generally recommend you plan to own a home for at least 3 years for it to make financial sense to buy.

Also consider the emotional implications that come along with the commitment of buying and the responsibility of owning property. Making such a large financial decision (and don't forget about moving) can be stressful. Make sure you're ready and that this purchase makes sense for you.

To learn more about whether it makes sense to buy vs. rent, read Viewpoints at Should I buy a home or keep renting?

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This information is intended to be educational and is not tailored to the investment needs of any specific investor.

Fidelity does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Fidelity cannot guarantee that the information herein is accurate, complete, or timely. Fidelity makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation.

Keep in mind that investing involves risk. The value of your investment will fluctuate over time, and you may gain or lose money.

Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917