Buying a home is one of the most significant financial decisions ever. It’s natural to have concerns and questions about the process, from finding the right house to securing a mortgage. Suppose you’re ready for this journey but need help understanding where to start.
Here are five things that you should consider before buying a house.
- Affordability and Budget
The first thing you’ll want to know, and perhaps the most important, is how much house you can afford. Housing prices have climbed significantly in certain areas, and mortgage rates aren’t as low as a few years ago.
The good news is that rates and prices fluctuate, so they can go down just as they went up.
Get a good idea of a monthly payment you can reasonably afford. One rule of thumb is that your yearly mortgage costs should be around 25% of your annual take-home pay. An affordable monthly payment provides a reasonable margin, so you’re not spending too much on housing month over month. Calculate your annual household income, take 25% of that, and divide it by 12. You can then use that rough monthly payment calculation to determine the home price that best fits your budget.
Monthly payments are significant, but they’re not the only cost you should know. Before shopping, consider other hidden costs, such as closing fees, property taxes, inspection fees, and the consistent, ongoing maintenance a house requires when calculating affordability. For instance, closing fees can include appraisal fees, title insurance, and attorney fees. Property taxes can vary depending on the property’s location and value. Ongoing maintenance can consist of lawn care, repairs, and utilities.
You can use this calculator to determine how much home you can actually afford by filling in the appropriate information: How much home can I afford?
- Location and Neighborhood
The next thing you’ll want to consider is the location of your home. What kind of neighborhood do you want to live in? What types of conveniences and local attractions would you like to be around? Are you one for solitary, remote locations, or do you like populated urban surroundings?
Explore the local spots and attractions to get an idea of the overall feel of the environment. Also, keep an eye out for planned developments in the area, as those can also affect property values.
Take into consideration any town amenities and services. Some towns provide trash pickup while others don’t, which will become an additional expense to budget for. When researching potential buying locations, consider the cost of any further service you may need to pay out of pocket or find a location where those services are available through tax funding and other programs.
- Property Condition and Inspection
Another important factor to consider is the condition of the property. That home may have a low, attractive price, but it might need a new roof, a new furnace, or have some flooring issues.
First, take some time to ensure the house is structurally solid for safety. Have an inspector check on any plumbing issues, electrical issues, roof condition, etc., because issues involving maintenance and repairs all come with dollar signs. One positive thing to remember when inspecting the property is that sometimes, needed repairs provide an opportunity to negotiate pricing with the seller.
If there are things that need improving, consider whether you’re equipped to fix them yourself or willing to pay a professional. For some, buying a home that needs work is precisely what they’re looking for.
Think about whether you’re ready to put in some work and make some renovations or opt for a house that’s more move-in ready. A clear idea of your intentions will help guide you toward the property you’re most comfortable managing.
- Understanding the Mortgage Approval Process
Review your credit history, as it’s a significant factor in determining how much you’ll be able to borrow. Lenders use your credit report to determine your creditworthiness and as a benchmark of financial habits. If you recognize your credit isn’t as healthy as it should be, think about improving it before applying for a mortgage.
Ensure you make all payments on time, do not max out credit cards, and maintain a healthy debt-to-credit ratio.
Once your credit is in good shape, take some time to get a mortgage pre-approval. Getting pre-approved is a great way to determine how much you can borrow and will provide a reasonable price range for your house hunt.
- Loan Types
A final thing to consider when buying a home is the mortgage type.
There are a variety of mortgage loan types with different terms and rates. Some mortgage options have fixed rates, where the rate doesn’t change throughout the life of the loan, while other types are adjustable-rate mortgages, where the rate adjusts periodically throughout the life of the loan.
Finding the right loan type depends on how much you can afford for a monthly payment, the size of your downpayment, and how long you plan to be in the home.
If you’re unsure what type of mortgage product will work best for your situation, talk to a Triangle Mortgage Loan Officer. They’ll review all the aforementioned factors, ask you about your financial situation and goals, and listen to your overall expectations of being a homeowner. As mortgage professionals, they’re also very aware of the housing environment and market and can guide you toward other little-known benefits and programs for which you might qualify.
These five tips can make the homebuying process less overwhelming so you can enjoy this exciting, and potentially new, chapter in your life!
