When it comes to buying a home now, there are plenty of challenges.
But homeownership can be a great way to build wealth and to maintain housing stability, said Kamila Elliott, a certified financial planner and co-founder and CEO of Collective Wealth Partners, a boutique advisory firm in Atlanta.
Achieving that goal now can be challenging, with home prices still elevated and higher interest rates pushing mortgage costs higher, said Elliott, who is a member of CNBC’s Financial Advisor Council.
“If you plan on being in the area for five years, you love the home and you’ve done a budget to really assess all the costs of homeownership, I do still believe buying a home right now is a good idea,” Elliott said.
There are tips Elliott gives to her clients that may help other prospective homebuyers work toward that big-ticket goal.
1. Prepare for monthly home payments in advance
One of the ways to be in the best financial position to purchase a home is to save, Elliott said.
And that goes beyond just the down payment.
A potential buyer walks in to view a home for sale during an open house in Parkland, Florida, May 25, 2021.
Carline Jean | Tribune News Service | Getty Images
For example, if you are paying $2,000 a month in rent and you will be spending $3,000 a month once you buy a home, you should try to put away an extra $1,000 a month so taking on the cost of a new home won’t surprise you.
You should also work on improving your credit score, which will put you in the best possible position to get a good rate on your mortgage, Elliott said. That means reducing utilization of your credit cards, watching your spending and looking at your credit report to correct any inaccuracies, if necessary.
2. Anticipate unexpected homeownership costs
One of the benefits of buying versus renting a home is the ability to have fixed costs, Elliott said. But homeowners still need to anticipate surprises, she said.
With many cities increasing property taxes, prospective homeowners would be wise to anticipate those costs going up.
Additionally, they should anticipate paying for landscaping, furnishing and unexpected emergencies such as a pipe bursting.
Make sure you have enough liquidity to handle those additional expenses as a homeowner, Elliot said.
3. Look for flexibility on your purchase
Though home prices and interest rates are high, there are still possible ways prospective homebuyers can cut costs.
By getting a shorter-term mortgage — say, for 15 years instead of 30 years — borrowers may access lower interest rates.
Homebuyers may also want to consider buying points on their mortgage, which can let them lock in a lower interest rate, she said.
Prospective buyers who have lower incomes should explore their city or county websites for homeownership or down-payment assistance programs.
As homebuying incentives start to come back, such as with closing costs, be sure to ask if there are opportunities to reduce the overall price of the home at this time, Elliott said.