15 Home Buying Tips From Suze Orman

Buying a home can change your life personally and financially in profound ways.

You need to make sure purchasing is the right financial decision and a choice you'll be happy with in the long term. Finance expert Suze Orman has offered a lot of homebuying advice. Here are 15 of her best pieces of wisdom to consider before you move forward with making an offer to commit to a property of your own.

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If you're concerned about buying a house in an economic downturn, your worries may be overblown, according to Suze Orman.

"I don't think you're going to see homes go down really in value," Orman told Yahoo Finance in a June interview. "You know, the truth is, real estate always does pretty well during a recession."

If you're in a good financial position to buy a home and plan to stay there for a while, Orman is likely right that you should still feel confident purchasing a property even if the country's GDP is in negative territory.

ALSO READ: Here's What a Recession Could Do to the Housing Market

In an article addressing retirement savings on her blog, Orman said to always "buy the smaller house."

As she correctly explained, larger properties come with much higher upfront and ongoing costs, including more expensive utilities. She suggests spending the minimum needed to meet your needs to free up money for other financial goals.

Orman had some wise words about what to do with your home in retirement if you've bought a larger house.

She suggested downsizing in your 50s and 60s rather than waiting until you officially leave work. This will free up more money for retirement savings, and you can take advantage of a seller's market.

While you may not think this plan is important when buying, you should keep it in mind as you determine whether you'll stay put in the home long enough to make purchasing worth it.

ALSO READ: Is Relocating in Retirement the Right Choice for You?

Orman has made it clear to readers and listeners that you need to be realistic in assessing how much you can afford to spend on a home.

She's warned that you need to consider all the costs, including not just your mortgage but also property taxes and insurance. This is crucial advice because if you don't consider all your homeownership expenses before you buy, you could struggle to pay your bills.

Orman also had a warning homebuyers should heed if they are considering an adjustable-rate mortgage (ARM).

"If you can only afford a home because you're doing an adjustable-rate mortgage, and you don't know how they really work. I would be very careful with them if I were you," Orman said to Yahoo Finance.

ARMs are risky because the initial rate is only locked in for a limited time, such as three or five years. After that, the interest rate can go up, and monthly payments and total costs can climb.

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When you buy a home, you need to make a down payment. Orman generally recommends putting 20% down.

However, she told NextAdvisor in an interview that you can move forward with just a 10% down payment if you really want to be a homeowner and have an emergency fund, no credit card debt, and are investing enough for retirement. A reasonable down payment is crucial to avoid owing more than your home is worth and to qualify for an affordable mortgage with most lenders.

ALSO READ: How to Save for a Down Payment on a House

Lenders consider your credit when deciding whether you should get a mortgage and what rate you will have to pay. That's why Orman advises focusing on improving your credit if you're planning to buy.

"If your score is lower than 740, please focus on boosting it as much as possible over the next few months," Orman said in a blog post about homebuying.

Some mortgages are backed by the government and are easier to qualify for. But Orman doesn't think you should rely on this kind of loan to buy a home.

"If your credit score is too low to qualify for a good conventional mortgage/PMI deal, I don't think you should be buying. Raise your credit score first," Orman advised on her blog.

Orman is right that most people should try to qualify for a conventional mortgage (one not guaranteed by the government) when possible. Conventional loans tend to come with lower rates and fewer upfront fees.

ALSO READ: Suze Orman Has Some Controversial Advice About FHA Loans. Is She Right?

Orman urges homebuyers to try to use no more than 20% of their available credit. This will help boost their credit score because the credit utilization ratio is a key factor in setting that score. Orman also suggested paying down as much other debt as possible to improve your debt-to-income ratio that lenders look at when deciding whether to approve a loan.

Orman has also warned against shopping too much on your credit cards in the months before buying a home, suggesting you become a "shopping miser."

This is good advice because lenders look at your monthly payments when deciding how much to lend you. Even if you plan to pay off your balance in full, if card companies report you owe a lot, this could affect your ability to close on your home loan.

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Orman suggests saving not only at least a 10% down payment (and ideally 20%) but also an eight-month emergency fund. This is great advice because you don't want to become unable to afford your house or any surprise repairs if things go wrong after you buy.

ALSO READ: Here's How Big Suze Orman Says Your Emergency Fund Should Be Before You Buy a House

You'll have to choose a term length when you get a mortgage. Orman recommends a 15-year loan instead of the more common 30-year mortgage.

Orman recommends 15-year loans because they generally come with lower interest rates, and you save a lot in interest by paying it for less time. You need to consider the opportunity cost, though, because your monthly payments will be higher, and you will be tying up extra money rather than using it for other things.

Since being a homeowner is a big financial change, Orman says you should take a test run of your new budget before committing.

"I want you to play house," Orman said, suggesting you practice making your full monthly housing payment even if it is less than your rent. You can put the extra money you are saving above your rent costs into a savings account that will give you a cash cushion when you move forward with buying.

ALSO READ: Are You Ready to Buy a Home? Here's What Suze Orman Says

Orman also warned against using your rent payment as a measure of how much you could afford to pay for a mortgage. She believes this is a bad idea because your mortgage isn't the only new cost you will likely incur.

"My rule of thumb is to add 30% to the base cost of a mortgage to cover all those expenses," she said in a post on the Alliant Credit Union website, referring to things like insurance and taxes. So if your rent is $1,000 a month, you can't necessarily afford a $1,000 monthly mortgage payment.

Finally, Orman also stressed to Alliant the importance of researching insurance costs.

She suggests getting replacement coverage, which pays to replace the home and your destroyed property in the event of a covered loss. This is an alternative to market value coverage, which only pays what your property is worth at the time of loss.

This is important advice because many people forget to consider insurance before buying a home and spend more than expected to cover their valuable new asset.

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Orman's tips relate to many aspects of homeownership and homebuying. You can make a fully informed choice by following her advice on mortgages, home insurance, and more. You'll go into buying a property with both eyes open and will hopefully end up with a house that's a great place to set down roots, as well as an investment that will pay off for you in the end.

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