Deciding to purchase a home is a major life decision. Buying a house can be a great way to build wealth and feel like part of the community. But it’s also a huge financial decision with far-reaching implications. Here are the five rules that can help you avoid common pitfalls.
A quick note: Following these rules doesn’t guarantee financial success - nor does breaking them necessarily doom you to a life of financial woe. Still, it probably won’t hurt to keep them in mind as you look for a new home.
Tip #1: Preparing Your Finances
Buying a home may be the most expensive purchase you will ever make, so it is important to first get your finances in order. Set a goal to secure financing with the best possible mortgage term and interest rate. Start by checking your credit report at www.annualcreditreport.com and make sure all of the information is accurate. It’s also a good idea to reduce high interest debt. Set aside money for an emergency; a good goal is to save three to six months’ worth of your committed expenses. The Coast Guard Command Financial Specialists (CFS) and Personal Financial Managers (PFM) have the ability to run credit reports for Coast Guard members using the myFICO tool. This credit resource is provided to the military services by the Financial Regulatory Authority (FINRA).
Tip#2: Review Your Spending Plan
Home buying doesn’t just mean swapping a rent payment for a mortgage payment. Ongoing continuous expenses to consider are real estate taxes, homeowners’ insurance, and maintenance. Limit your housing costs to your basic allowance for housing (BAH) rate or 25 percent of your gross income.
Tip#3: Know How Much You Can Afford
Once you have a good handle on how much you can budget per month for housing costs, use a mortgage calculator to help estimate how much home you can afford. Be sure to include property taxes, insurance, homeowners’ association (HOA) fees, and repairs. Know what you’re willing to pay. You may want to consider the cost of additional life and liability insurance to help protect your purchase. While you’re on your journey towards home ownership, now could be a perfect time to start researching loan options and see if you’ll need assistance with a down payment.
Tip#4: Get Pre-Approved
Once you have your finances in order and you know how much you can afford, get pre-approved before you start shopping. The type of loan you decide on influences your down payment, pre-purchase inspections, and additional insurances. Veterans Affairs (VA) Loans have a unique benefit of not requiring Private Mortgage Insurance (PMI). However, other home loan options automatically require PMI when a down payment of less than 20 percent is paid. Whereas a 20 percent down payment is recommended, many home ownership programs allow you to put down as little as five percent.
Tip#5: Save for Move-In Expenses
Open a “Make It Mine” savings account to cover manageable expenses for decorating and personalizing your new house before you move in. Prepare to allow your self-expression to flow toward your own DIY projects. You can manage this short-term savings account easily with your community bank or credit union.
Make the shift from a mindset that limits your belief in what you can achieve, to one that is limitless. Develop a home ownership goal that is specific, measurable, and attainable. Remain intentional and adjust your plan of action as you work towards your goal and soon you, too, will be a home owner!
- The Coast Guard’s Personal Financial Management Program (PFMP) provides access to financial resources, education, training, and counseling services necessary to empower USCG personnel and their family members to meet personal financial goals, achieve financial security and to remain mission ready. For additional information and resources for the PFMP, please visit their website.
- You may also reach out to your nearest Personal Financial Managers (PFMs) located at each Health, Safety, and Work-Life Regional Practice (HSWL-RP).
- Your Command Financial Specialist is also available for support with basic financial training, budgeting, and referrals.
- CG SUPRT offers onsite classes, webinars, online tax filing, and telephonic money coaching sessions under their Personal Financial Wellness Program; for more information, visit www.CGSUPRT.com or call 1-855-CG SUPRT (247-8778).
About the writer:
Towonia Donson-Williams is the Personal Financial Manager for Coast Guard's 8th District. She is an Accredited Financial Counselor (AFC) and holds her Masters in Human Resource Management (MSHRM). She has worked with the Navy Fleet and Family Support Center for three years and carries a background of over 10 years in retail banking management. She is impactful in working with Coast Guard service-members, their families, and other fellow civilian employees assisting with seeking the bottom-line and heart of their financial goals. Outside of work, she enjoys spending time with her son and daughter in Pensacola, Florida.