Buying a home is arguably one of the biggest financial decisions anyone can make. Buying rather than renting means you’ll likely be able to put down roots for the long term and increase your wealth over time since you’ll be building equity where you live.
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While this sounds great, it’s of paramount importance to be financially prepared before deciding to buy a home.
Reddit and USA Today recommend avoiding these four financial moves before buying a house.
Draining Your Savings
If buying a home means you’re going to mostly or completely deplete your cash savings, you might want to think twice. While it takes a lot of money to buy a home, from the down payment to closing costs, broker’s commission, mover, new furniture, and more, it may cost you even more to maintain your home over time. If your roof needs to be replaced or your basement gets flooded, you don’t want to find yourself in debt because you didn’t have the funds to pay for the repairs.
As a general rule, it’s advisable to have a high-yield savings account with 6-9 months’ worth of monthly expenses in cash at all times. However, as a homeowner, you’ll likely want to save a lot more than that before you embark on your homeownership journey.
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Opening a 0% APR Credit Card For Things You Can’t Afford Now
Choosing to open a 0% APR credit card before buying a home can be a smart way to defer having to pay for all the things you need upfront. The cost of new furniture, decor, and other home essentials can add up quickly.
However, it all depends on how you take advantage of this type of credit card offer. If you use the opportunity to purchase too many things that you ultimately don’t have the cash flow for, you may very well find yourself in a mountain of credit card debt. If you’re on a tighter budget, consider buying secondhand furniture or choose discount home decor instead.
Not Making a Plan to Pay Off Your Credit Card On Time
It’s crucial to create a plan to pay off all the expenses you might charge to your credit card before an applicable 0% intro APR period ends. You won’t want to carry a balance after the 0% intro APR period ends since you’ll start to incur interest payments on whatever balance might remain. Once you have a mortgage payment, you may not have the means to make high-interest credit card payments on things you bought a while ago.
Taking on Too Much Debt
Take caution before opening a new line of credit, especially if you’re applying for a mortgage. Lenders typically consider your debt-to-income ratio when deciding whether to approve you for a mortgage. So, if you’re carrying too much debt, you could potentially jeopardize your chances of being able to buy a home.
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This article originally appeared on GOBankingRates.com: 4 Financial Moves to Avoid Before Buying a House
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