Purchasing a home is going to be one of the biggest commitments and financial endeavors of your life. Make sure you are completely prepared for the process both monetarily and emotionally. If you’re heart isn’t completely invested in the home you want to buy, it’s always worth waiting until you find the perfect abode. Either way, keep these tips and tricks in mind for when you become an official homeowner.
1. Plan Ahead for the Future
You might be caught up in what you want right now in a house, but your preferences could drastically change over the years. For example, if your family grows you’ll want to have enough bedrooms to accommodate.
Be honest to yourself about how committed you are to living at this new property. Refinancing might be a great option for you, but only if you plan to stay at the house for a very long period of time.
2. Improve Your Financial Situation
Make sure your finances are up to par to pay off your mortgage. Typically, sites like Zillow will list the average monthly mortgage rate (but keep in mind this isn’t the only expense you’ll be paying).
You want to be the best loan candidate possible. This means building a healthy credit score, paying off at least 20% of the down payment immediately, having plenty of money in savings and a stable income. Most lenders want to see 3 to 5 month’s worth of mortgage payments in your savings in case of an emergency.
3. Prepare for Purchasing a Loan
Searching for a home with a realtor might seem like the biggest challenge to tackle, but a lot of your time and effort should go into planning the next steps after signing. Mainly, your mortgage.
Think about hiring a mortgage broker to help you through this tricky process. Decide how long you want to pay a loan for too. Loans come in 30-year and 15-year options. If you can afford the 15-year rate, you’ll end up paying about a third less in interest. But a 30-year loan gives you the option of paying less each month for a longer period.
Having a good credit score is absolutely crucial to get the best deal on a loan. A credit score of 750 or higher will get you the best rate on the market. A score below 680 means you’ll have to pay higher interest rates from the get go.
When you consider these options and you tap into your savings for the initial payment, remember to keep some savings aside for emergency purposes. If you feel you’re pinching pennies after all these considerations, then maybe you should wait a few years before committing to a home.
4. Consider Additional Expenses and Taxes
From fees to utilities, additional expenses can have a significant impact on monthly bills. Consider all these factors before purchasing a home:
If you purchase a house in a planned development, you will be required to pay Homeowners’ Association (HOA) fees typically ranging from $200 to $400 a month. Talk to the HOA of your property to make sure they manage the properties effectively. You want to be aware of all the rules and regulations, catastrophe insurance information and find out if there are sufficient funds in the HOA reserves. Otherwise, surprise expenses might pop up if the development needs to pay for miscellaneous repairs.
Utilities and Maintenance
Reports have revealed the costs for electric, natural gas, water and sewer add 25% more cost to your monthly house expenses. This rate adds up to over $2,000 a year in bills for the average single-family home. Remember to keep these prices in mind!
Utilities for an apartment will typically be lower than a house. Older homes also lack insulation and can make bills a little pricier. Find out if the property has any “green” updates that might make utilities cost less. New homes also require less maintenance, which is a huge pro if you’re deciding between a cute historical home and a property built within the last decade.
Ask the sellers to provide the last 12 months of charges paid for utilities. It’s good to ask for a full year’s worth since some seasons will require less heat or cooling than others.
Homeowners are responsible for paying the property tax value assessed each year on their house. After a home is sold, the tax value is reset according to the new sale price. The average total in taxes an American household pays each year is about $2,200.
The percentage of tax you pay each year can also vary depending on what state you live in. In 2016, Hawaii had the cheapest tax rate at only .27%, whereas New Jersey paid a whopping 2.40%.
On the plus side, one big benefit of being a homeowner is tax deductible when you file your tax return!
The home buying process takes planning, preparation, and several considerations. Mortgage and real estate professionals can help guide you through each step and give you advice on how to approach a future home purchase. Talk to a professional today and find out what you can do to set yourself up for a successful home buy!