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 Fidelity.com: How much house can I afford?
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 Fidelity.com: 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 Fidelity.com: Should I buy a home or keep renting?