Things to Know Before Buying a House
Purchasing a home is one of the biggest decisions you can make. Not only will it be one of your most expensive purchases, but it can also have a drastic effect on your quality of life.
There are several things you should consider when buying a house, including costs, locations, and building quality. Take a look at this homebuyer checklist of what to look for when buying a house to make sure your new home is the right one for you.
Here’s what you need to know before buying a house:
1. How Much “House” Can You Afford?
Many first-time homebuyers may not realize that there is more to buying and maintaining a home than paying a mortgage. There are many hidden costs that may increase your purchase price by thousands of dollars. While you’re narrowing down which house to buy, be sure to consider all of these potential costs.
Mortgage Types: No matter what your budget looks like, there’s a mortgage type available to fit your needs. Some of the more common mortgage types include:
- Conventional or fixed-rate mortgages
- Interest-only mortgages
- Adjustable rate mortgages (ARM)
- USDA loans
- FHA loans
- VA loans
Every mortgage loan is going to come with its own interest rates and stipulations. The rule of thumb is that your principal, interest, tax, and insurance payment (PITI) shouldn’t exceed 28%-30%, of your gross income. For more information, check out this article on the different types of home loans.
HOA fees: Many neighborhoods and communities have Homeowners’ Associations (HOA). Depending on the property type and the total services provided by the HOA, the HOA monthly payment can vary, typically ranging between $200 to $500.
Taxes: Property taxes and deductible homeownership costs vary state by state. Do your research or talk to a professional to find out what the laws are in your new city and make sure the expected annual payments can fit in your budget.
Basic home maintenance: Once you move in, keeping the house in good condition jumps onto your list of costs. You’ll quickly find yourself regularly paying for small household items like air filters and light bulbs. A popular estimate is that annual maintenance will cost about 1-3% of your home’s purchase price.
Appliance replacements: In addition to keeping the bones of the house strong, you will also find yourself spending money on fixing or replacing appliances. Items like dishwashers, laundry machines, and refrigerators have a lifespan of around 9-15 years meaning that you may need to budget buying new ones sooner than you think.
Major repairs: Just like appliances, bigger projects like a new roof, windows, or HVAC system will eventually appear. These repairs can be costly. It’s important to plan for repairs when managing your budget and keeping your credit in check to cover any emergency costs.
2. Does the House Meet Your Needs?
Once you’ve figured out your housing budget, the next step is deciding what kind of house you need. This includes the house’s size, number of rooms, number of bathrooms, landscaping, and whether or not it has a garage.
Figuring out your ideal home size depends on both your present and future needs. If you want to raise a family, having an extra room is a good idea. On the other hand, it might be best to avoid having too much house and breaking your budget.
3. Do You Like the Location?
”Location, location, location” is more than just an old real estate saying. The location of your home has a huge effect on both your lifestyle and the value of the house. Some things to consider when looking for a new place include:
- Commute times
- Nearby schools
- Value of nearby homes
- Crime rate
The more you know about what it’s like to live in the area, the better prepared you are to decide if you’ll be happy there.
4. Is it a Well Built House?
Before committing, assess the quality of the building you want to purchase. Ideally, the house should require little to no repairs. Doing a little research on your own before making a purchase could save you thousands in repair costs.
Schedule a thorough property inspection by a licensed and experienced inspector. The inspector will provide a list of items that need repair including walls, doors, and the house’s foundation. The cost of these repairs can be a great leveraging tool in negotiating the final price of the house.
5. Do you qualify for a mortgage?
Knowing what you can afford, your credit score, and your current debt-to-income ratio are vital to determining what type of mortgage you can qualify for. These factors also play a role in knowing what you have to save in order to achieve homeownership.
Lenders use your credit history to determine whether or not to approve you for a mortgage loan. When you apply, lending companies will look into how much credit you have used in the past, how much credit you have available, and how you have handled debt.
However, you can still qualify for a mortgage with bad credit. There are a number of loan types that may fit your needs and there are ways to be approved despite a bad financial history.
Regardless of the loan type you choose, you should also seek to minimize any debt you may currently have. This will, in turn, improve your credit score which may lead to getting a better interest rate. If you’re not sure where to start, consider taking an online homebuyer class.
Remember, being approved for a certain loan amount doesn’t always mean that the loan amount is the “right” mortgage for you. Do your own calculations to decide how much you want to spend and what is manageable for your lifestyle.
Not sure where to begin? Talk with our professional finance coaches to determine your mortgage readiness and take control of your upcoming and existing debt today.