Buying a home is an exciting time in life but it can involve many decisions that could keep you up at night. Researching all of your decisions is a large part in making the buying process smoother. Which areas should you research? Things as basic as which house you select down to the specifics of mortgage decisions and hiring a private home inspector.
How flexible are your finances?
Financial flexibility is one of the key pain points in deciding between a 15-year and 30-year mortgage. A 30-year mortgage offers more financial flexibility with lower payments every month but, in the long run, you will end up paying significantly more interest than the 15-year mortgage counterpart. If you’re willing to commit to building equity fast and sacrificing more of your paycheck, you will save in the long run.
If you’re looking for more financial freedom, using the 30-year mortgage option could be the more practical option.
Alternately, if you’re not ready to commit to a larger 15-year mortgage payment, you can look into prepaying on a 30-year if the terms of your loan allow additional payments. You also have the option, later in the life of your mortgage, to refinance for a lower rate or a different term.
What life stage do you fall in right now? In the near future?
After you’ve looked at what you can afford, take a look to see how your debt is structured and have some foresight as to what could be coming shortly.
- Are you already paying down previously acquired debts such as student loans or auto loans?
- Is a marriage, family or car purchase in your future?
- Are you going to be putting your children through college?
- Might you need to take care of a parent or move them in with you?
- Are you hoping to retire early?
Evaluating your life stage and projecting into your future will also help you to decide how much money you have to allocate towards building equity and becoming debt-free.
Other important things to consider before purchasing a house include saving an emergency fund, which will support your soon-to-be purchase, putting aside a down payment and moving expenses.
While a 15-year mortgage is a lofty goal for some, rearranging your budget, cutting out unnecessary expenses and sacrificing now for future payoffs might make it all worthwhile.
The toughest question you may have to answer is, “What will I do with all the cash I’ll have after my last payment?”