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Are you thinking about hunting for a home or already hitting the open houses? If so, creating a home-buying wish list can help you identify what you need, what you want, what to avoid, and other key factors in your decision of whether to bid on a property or not.

By getting these thoughts down on paper (or an online document), you can better focus your house hunting and have a guide as you navigate this process.

Here, you’ll learn more about creating a home-buying wish list template and zooming in on the right property for you. It will also help you steer clear of falling for a house that can wind up being a bad fit as time passes.

What Is a Home-Buying Wish List?

A home-buying wish list is a simple template that can help you identify and prioritize the features you are looking for in a home. It gives you a method to evaluate whether a property is one to bid on or one to pass on.

For example, a wish list can help you zero in on the price you want to pay, the community you want to be in, the style and size of the home, the acreage of the property and outdoor features, and other variables.

By having a wish list, you can stay on target. Say you fell in love with a charming farmhouse with shutters and perfect window boxes full of flowers, but no ground-floor bathroom (or room to add one) and a roof in need of repair. If your wish list said, “Must have a ground-floor bathroom” and “Roof in good repair,” you would hopefully be able to say no to the home’s curb appeal and keep searching. That way, you may well avoid having buyer’s regret.

Benefits of a Home-Buying Wish List

A home-buying wish list has several pros:

•  Creating a wish list gives you the opportunity to consider your needs and wants in a home. It also will help you prioritize the features that you most want in a property.

•  A wish list can help you stay on budget. If you know that you absolutely must have a spa-style bathroom or a chef’s kitchen, you need to stay focused on finding a home that offers that or else have money set aside to renovate to those specifications.

•  By developing a wish list, you and your partner or family member you are house shopping with can align on priorities.

•  You can better understand trade-offs involved in a home purchase. For instance, if you are determined to buy in an area with a hot housing market or a pricey school district, you may only be able to afford a smaller property than you might like.

Recommended: First-Time Home-Buyer Programs

How to Create a Home-Buying Wish List

If you are ready to dive in, follow these steps to develop your wish list.

First, Daydream a Little

After you’ve closed your eyes and thought about it, write down everything you saw in the vision.

Before writing down all your wants on a home-buying wish list, sit back and fantasize a little about what an ideal home looks like. This dream house will look different to everyone, but after you’ve closed your eyes and thought about it for a while, you should write down everything you saw in the vision.

Is there a big yard and open space (or even a pool), or is it in the center of town where all the action is? Do you gravitate toward a mid-century modern home or a center-hall colonial? Does the dream home come with a big eat-in kitchen, or are lots of bedrooms more important? Is there space for a game room? An outdoor spa? A wraparound deck or a balcony overlooking it all?

It’s your dream. Go ahead and dream about home size, home age, and home style. That way, you can better realize what you really want (and want to steer clear of) in a home. Start writing down your wish list.


💡 Quick Tip: With SoFi, it takes just minutes to view your rate for a home loan online.

Whittle Down the Dream List

After spending some time thinking about what a dream home would look like if money were no object and jotting down notes, you might then start crossing things off your list.

Realistically, maybe you don’t need five bedrooms but can live with three instead, and maybe the basement doesn’t need to be finished just yet. Or, perhaps a kitchen remodel can come with lower-end appliances that look like commercial ones but come with a more manageable price tag.

Bring down that daydream list to reality before beginning the search.

Consider Who You’re Buying With, Too

Before going out to buy a home, whether you’re a first-time home buyer or old hand, it’s important to think about who’s going to live there. Is it just for one? A couple? A whole family?

It would be best to get everyone’s input on wants vs. needs to ensure that all will be satisfied with this monumental life and financial decision. You might want to sit down as a group and consider the following.

•  Setting: It may also be a good idea to get granular about your location. For instance, a potential homebuyer who has a dog may want to consider a neighborhood that has good walkability and sidewalks.

A potential buyer who works from home may want to think about how close a coffee shop is so they can pop over for a snack. Websites like Walk Score can help people discover how close cafes, shops, restaurants, grocery stores, and public transportation are to their new address.

•  The right school district: If a person is buying a new home with family members in mind, it’s important to consider every home’s school district. Websites like GreatSchools provide information on school district rankings. All users need to do is pop in the ZIP code.

Even if a person isn’t thinking about having children, school districts still may play a role in their home-buying decision. That’s because a school district can play a major part in a home’s resale value.

It may be a good idea to also draw up a neighborhood wish list.

💡 Quick Tip: To see a house in person, particularly in a tight or expensive market, you may need to show proof of prequalification to the real estate agent. With SoFi’s online application, it can take just minutes to get prequalified.

Home-Buying Wish List Template

Need some inspo for creating a home-buying wish list? Check out the U.S. Department of Housing and Urban Development’s checklist .

You can then customize it and drill down on the features that really matter to you. For instance, if you have school-age kids, you might add a line for after-school care programs; are they offered or not?

If you know you will be tight on cash for renovations, then you might get more specific about the age of key home systems, such as the HVAC, the major appliances, the roof, and so forth.

Questions to Ask While Home Shopping

In addition to running through the usual features of a home, here are a few additional points to consider:

•  Are you in an area that is prone to natural disasters? Would you, say, need flood insurance, and how much would it cost?

•  Have any additions been made to the home? If so, was the paperwork (permits and such) properly filed?

•  What are the typical monthly utility costs for the home? This may help you get a ballpark number that can help you assess your home-buying budget.

•  Is there an HOA? If so, what costs are involved, and what rules are enforced?

Recommended: What Do I Need to Buy a House?

The Takeaway

Creating a homebuying wish list helps to identify wants and needs, what is in the budget, and what everyone involved—spouse, children, pets, guests, an elder parent—can live with happily (if not ever after, for a while). Home style, size, neighborhood, and amenities come into play.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQ

How do I make a house wish list?

A good place to start is with the U.S. Department of Housing and Urban Development’s checklist. You can then customize the wishlist to better suit your areas of focus, such as school districts and programs, or, say, acreage and outdoor features.

How do I get my house ready to sell with a checklist?

Many home-buying sites and mortgage lenders offer downloadable checklists that help you get your house in order to sell. These typically review how to assess and enhance the exterior of your home, your property, as well as the interior. Usually, they go room by room with features for you to note and maintenance issues to potentially wrangle.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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The margin of safety formula provides a way for investors to calculate a safe price at which to buy a security. This method derives from the value investing school of thought. According to value investing principles, stocks have an intrinsic value and a market value. Intrinsic value is the price they ought to be trading at, while market value is its current price.

Figuring out the difference between these two prices, typically expressed as a percentage, is the essence of the margin of safety formula. Using it correctly can help protect investors from painful losses.

What Is a Margin of Safety?

A margin of safety, as it relates to investing, gives investors an idea of how much margin of error they have when evaluating investments. Making profitable investment decisions is largely about investment risk management. The risk involved in a trade needs to be balanced with the potential reward. In financial markets, taking greater risks often gives the potential for greater rewards but also for greater losses — a concept known as the risk-reward ratio.

There are actually two ways that margin of safety can be utilized. One is in the investing sphere, the other is in accounting.

Margin of Safety in Investing

As it relates to investing, the purpose of calculating a margin of safety is to give investors a cushion for unexpected losses should their analysis prove to be off. This can be helpful because although estimating the intrinsic value of a stock is supposed to be an objective process, it’s done by humans who can make mistakes or inject their own biases. Even the most experienced and successful traders, both institutional and retail investors — all don’t always make the right call.

To try and correct for this possibility, value investors can determine their margin of safety when entering a position.

Expressed as a percentage, this figure is intended to represent the amount of error that could go into calculating the intrinsic value of a stock without ruining the trade. In other words, the percentage answers the question, “By what margin can I be wrong here without losing too much money?”

Margin of Safety in Accounting

In accounting, margin of safety is a financial metric that calculates the difference between forecasted sales and sales at a break-even point. While this has obvious use in a business context, it’s not really applicable to investors.

💡 Quick Tip: All investments come with some degree of risk — and some are riskier than others. Before investing online, decide on your investment goals and how much risk you want to take.

Margin of Safety Formula

The margin of safety formula works like this:

Margin of safety = 1 – [Current Stock Price] / [Intrinsic Stock Price]

Example of Calculating Margin of Safety

Let’s look at an example of calculating margin of safety.

An investor wants to buy shares of company A for the current market price of $9 per share. After a thorough analysis of the company’s fundamentals, this investor believes the intrinsic value of the stock to be closer to $10. Plugging these numbers into the margin of safety formula yields the following results:

1 – (9/10) = 10%.

In this example, the margin of safety percentage would be 10%.

The idea is that an investor could be off on their intrinsic value price target by as much as 10% and theoretically not take a loss, or only a very small one.

Now an investor has determined their margin of safety. How might they use this figure?

To provide a substantial cushion for potential losses, an investor could plan to enter into a trade at a price lower than its intrinsic value. This could be done using the calculated margin of safety.

In the example above, say an investor decided that 10% wasn’t a wide enough margin, and instead wanted to be extra cautious and use 20%. They would then set a price target of $8, which is 20% lower than the stock’s estimated value of $10.

Who Uses the Margin of Safety Formula?

The margin of safety is typically used by investors of value stocks. Value investors look for stocks that could be undervalued, or trading at prices lower than they should be, to find profitable trading opportunities. The method for accomplishing this involves the difference between market value and intrinsic value.

The market value of a stock is simply what price it’s trading for at the moment. This fluctuates constantly and can extend well beyond intrinsic value during times of greed or fall far below intrinsic value during times of fear.

Intrinsic value is a calculation of what price a stock likely should be trading at based on fundamental analysis. There are several factors that determine a stock price and the analysis considers both quantitative and qualitative factors. That might include things like past, present, and estimated future earnings, profits and revenue, brand recognition, products and patents owned, or a variety of other factors.

💡 Quick Tip: How to manage potential risk factors in a self directed investment account? Doing your research and employing strategies like dollar-cost averaging and diversification may help mitigate financial risk when trading stocks.

How Investors Can Use Margin of Safety

After determining the intrinsic value of a stock, an investor could simply buy it if the current market price happens to be lower. But what if their calculations were wrong? That’s where a margin of safety comes in. And why it can be very important when investing in stocks.

Because no one can consider all of the appropriate factors and make a perfect calculation, factoring in a margin of safety can help to ensure investors don’t take unnecessary losses.

As mentioned, too, the margin of safety formula is also used in accounting to determine how far a company’s sales could fall before the company becomes unprofitable. Here we will focus on the definition used in investing.

Ideal Margin of Safety

It’s difficult to say if there’s an ideal margin of safety for any particular investor. But we can say that the larger the margin of safety is, the more room an investor has to be wrong — which isn’t necessarily a bad thing. With that in mind, a larger or wider margin of safety is probably better for most investors.

How Important Is the Margin of Safety

With the idea in mind that a wider or larger margin of safety allows for more room to be wrong about investment choices or analyses, it can be fairly important for investors. But it really will come down to the individual investor, who considers their own personal risk tolerance and investment strategy, and how it meshes with their tolerance for being wrong.

While it may be important to a degree, there are likely other factors that eclipse it in terms of overall importance in an investing strategy. For example, investing regularly and often may be more important — but again, it’ll come down to the individual.

The Takeaway

In investing, the margin of safety formula is a way for investors to be extra careful when selecting an entry point in a security. By determining a percentage and placing a discount to a stock’s estimated value, an investor can find a mathematical framework with which they can try to be safer with their money.

It’s relatively easy to learn how to calculate one’s margin of safety. There are only two variables — the market value of a stock and the intrinsic value. Dividing the market value by the intrinsic value then subtracting the result from one equals the margin of safety.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

FAQ

What is the ideal margin of safety for investing activities?

There may not be an ideal margin of safety for investors, but as a general rule of thumb, the wider the margin, the more room they have to be wrong. Therefore, the bigger, the better, in most cases.

Is the margin of safety the same as the degree of operating leverage?

In accounting, the margin of safety refers to the difference between actual sales and break-even sales, whereas the degree of operating leverage is a different metric altogether. So, no, they’re not the same.

What is a good margin of safety percentage?

While there is no hard and fast answer, some experts might say that a good margin of safety percentage is somewhere in the 20% to 30% range.

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