Buying a home is often the biggest financial decision you will ever make.
It’s not just about choosing a place to stay. this is a long-term investment that will affect your financial future for years to come.
So if you’re looking to buy a home, there are some steps you should take to prepare for the purchase, according to several advisors ranked on CNBC’s 2024 Financial Advisor 100 list.
“Number one is doing that initial work and financial planning,” said Brian Brady, vice president at Obermeyer Wood Investment Counsel in Aspen, Colorado. The company is ranked No. 23 on the 2024 CNBC FA 100 list.
Most importantly, it should be a “smart financial decision” that makes the most sense for you, explained Stephen Cohn, co-founder and co-president of Sage Financial Group in West Conshohocken, Pennsylvania. The company is ranked No. 61 on the 2024 CNBC FA 100 list.
“I’ve met a lot of first-time homebuyers, friends, kids, acquaintances. They fall in love with the house and it may not make sense for them financially,” said Ron Brock, managing director and chief financial officer at Sheaff Brock. Investment Advisors in Indianapolis, Indiana. The company is ranked No. 7 on the 2024 CNBC FA 100 list.
He tells them: “Be smart. Don’t be poor at home.”
Here are some basic steps to consider if you are planning to buy a home:
1. You have a strong credit score
Make sure you’re loud creditsaid Shaun Williams, a private wealth advisor and partner at Paragon Capital Management in Denver, Colorado. The company is ranked No. 38 on the 2024 CNBC FA 100 list.
“The higher the credit score, the better terms you’ll get on the loan and the lower the interest rate,” said Ryan D. Dennehy, a financial advisor at California Financial Advisors in San Ramon, California. The company is ranked No. 13 on the 2024 CNBC FA 100 list.
For example, a FICO score ranging from 760 to 850 may qualify for an APR of 6.226%; according to at Bankate.com. That can translate to a monthly payment of $1,842, according to Bankrate.
On the other hand, a FICO score of 620-639 can get a 7.815% APR, which equates to about a monthly mortgage payment of $2,163, per Bankrate examples. They are based on national averages for a 30-year fixed mortgage of $300,000.
You can start the process by paying off any existing debt you have on time and in full and avoid new loans as you get closer to buying a home, experts say.
2. Start saving for the down payment
While a 20% down payment is not required to buy a home, buyers are trying to put more money upfront to avoid mortgage insurance costs and potentially lower monthly payments.
In the third quarter of the year, the average down payment was 14.5 percent and a median price of $30,300, Realtor.com told CNBC.
To start saving for a down payment, you need to figure out your cash flow, or how much money is going against the outgoings each month, said Steven LaRosa, principal and senior portfolio manager at Bethesda, Maryland-based Edgemoor Investment Advisors. . The company is ranked No. 14 on the 2024 CNBC FA 100 list.
Also, try to maximize how much money you can save or put toward the down payment, LaRosa said.
3. Build up your emergency savings
It’s not just the down payment that needs to be created, Williams said.
“You should have six months of your spending needs, including your home spending needs, in an emergency fund,” he said.
You don’t want to find yourself in a situation where you spend all of your savings on the down payment of a home and end up with no cash left over.
Home emergency spending was $1,667 in 1.5 projects per household in 2023; according to in a report by Angi, an online marketplace for home improvement professionals.
3. Think about the lifestyle you want
Ask yourself what kind of lifestyle you’re looking forward to, Brady said.
“Looking for an apartment? Do you want a detached house?” he said.
Then you can focus on factors like location and price, Brady said.
Meanwhile, some of the additional costs that come with owning a home are due to where you live, such as property taxes, utilities and insurance, he said.
In some areas, “it’s almost impossible” to get home insurance, Brady said. “And if you can [get home insurance] you pay enough“
Nearly three-quarters or 70.3% of Florida homeowners and 51% of California homeowners say they or the area they live in has been affected by rising home insurance costs or changes in coverage in the past year; according to at Redfin, an online real estate brokerage.
5. Factor in other home ownership costs
Owning a home is about so much more than just making a monthly mortgage payment.
You have to consider the additional costs, experts say.
At this point, home ownership costs average $18,118 per year, or $1,510 per month. according to in a Bankrate.com report. The national number includes the average cost of property taxes, homeowner’s insurance, and electric, internet and cable bills. Maintenance was calculated at 2% per annum of the value of the house.
“These are very important additions that sometimes people take a look at and don’t put enough weight on,” Cohn said.
Since these costs are unlikely to decrease over time, it’s important to have an emergency fund for home ownership costs, experts say.
6. How long you plan to stay in the home
“We like to use at least five to seven years,” Cohn said. The longer you’re in a home, the more likely the fixed costs will be depreciated or paid off over time, he said.
In addition, in the early years of the loan, you pay mostly the interest rate and not the loan itself, experts say.
“You don’t build any equity from putting money down on the mortgage for the first 5 to 7 years,” Cohn said.
“If you start looking at how much money goes into principal and how much goes into interest in the first several years, it’s probably all interesting,” Brock said.