Things you Must Consider Before Buying a Home
Buying a house is one of the most significant financial commitments you will ever make. It can be rewarding as a release from the strictures of renting, but it can also seem like a scary prospect, especially for first time buyers.
What things must you look at before taking that leap? We examine some of the common areas that need consideration if you are going to make the transition to home ownership a smooth one.
Knowledge is power, and power is control. Knowing your stuff is crucial if you want better buying experience and a deal that gives you the best value.
How many first time buyers are aware that each state provides assistance through state housing authorities? If you live in North Dakota, for instance, you can access help with affordable interest rates, get down payment assistance in the form of a loan, and they even offer first time buyer education classes that are worth investigating. These state housing authorities are replicated all over the country, so wherever you live you’ll have access to help.
In addition, some professions qualify for preferential treatment when buying a home, including those the military, first responders, teachers, nurses, and others. You can find links to your local state housing authority on the USA.Gov website, as well as many more helpful programs.
Beyond these resources, you should try to prepare the following before beginning the house buying process:
- Know your credit score – This will help when you shop for a mortgage.
- Save as much of the downpayment as you can – This will increase your chances of getting a mortgage at a better interest rate.
- Set a budget and stick to it – Buyers can get carried away, especially if you set your heart on a home or find yourself in a bidding war.
- Don’t take financial risks – Taking out a loan after mortgage pre-approval can affect whether you secure that mortgage later when you need it.
Don’t Jump in Over Your Head
This is a common area where buyers fall short. Once you start on the road to ownership, you can be swept along at quite a quick pace. Don’t lose sight of the original goals, and don’t let your heart rule your head. Keep your hand firmly on the financial tiller as you steer through the choppy waters of temptation.
Buying a home isn’t the same as buying a car; we fall in love with a house such that we want it at all costs, and it’s at this point that the homeowner and realtor sniff your desperation. If ever there is a time to play it cool, it’s now.
Know the True Costs of Buying a House
There are many costs that ramp up the bill when buying. Your realtor or mortgage broker will educate you on additional charges such as broker fees, home inspection fees, legal expenses, closing fees, and realtor costs to name a few.
Location, Location, Location
Decide on an area where you want to live. Sounds simple, but in reality, there are so many things that buyers have on their wish lists it can become confusing: is there access to public transportation nearby? What are the schools like? How long will it take you to commute to work by car? The list can be endless.
To streamline this long list into “wants” and “needs,” take a piece of paper and draw a line down the middle. At the top of the first column write “Must have” and under it make a list of what you realistically need. When you’ve finished head the second column with “Would like,” and list the items that you prefer but are not mandatory. What this chart does is enable you to visualize what’s important and, more crucially, what you are willing to compromise on.
The “Would like” column should be the most flexible of the two, as that’s the list of preferences that may not be deal breakers. The “Must have” list should be the one that changes little because it should be full of the necessities that you need in your ideal location.
Research the Neighborhoods
Once you narrow down your search and have a couple of locations in mind, check them out. Drive up and down the streets looking for trouble spots, noise, disturbances, and anything that might deter you from purchasing. Park opposite any house of interest and sit for a while, watching to see who comes and goes. You might even catch a glimpse of the neighbors.
This all sounds extreme, but when you are investing your hard-earned money into this deal, you want to make sure that it is the right one for you, so be ruthless. The upside is that you learn what the area is truly like before you commit financially, and it could save you from making an expensive mistake that you regret later.
According to the website SWNS Digital, 16 percent of Americans have moved because of their neighbors, and 36 percent have had incidents with their neighbors that have escalated to full-blown arguments. You can work to sidestep such confrontation by doing a little stake out prior to purchase.
Long-Term Vs. Short-Term
Decide on the length of time you intend to live at the property. This is important, especially if you want to make money from your purchase to put equity towards a more significant step up in the coming years. House values can increase over time: according to Zillow, in 1980 the median price of a US home was just $47,200. In 2018 it stood at over $200,000, and in that last year alone the average increase in values has been over 7 percent.
Location and renovations can also be a source of increased value. Buying a house in a neighborhood that has low crime levels, good schools, and infrastructure are crucial if you want to increase the value of your home over time. By the same token, choosing a house that enables you to make improvements that increase the value is also important.
Know the Tax Laws
Prior to Dec 2017, the interest you paid on your mortgage loan was eligible for deduction up to an amount of $1 million. Under the Tax Cuts and Jobs Act, however, that changed. From 2018, Americans that are new buyers are only eligible to deduct interest on loans up to a maximum of $750,000. If you are married but file your taxes separately, the limit is $375,000 per person.
The changes don’t affect existing homeowners at the moment. This chart shows you the 2018 changes to mortgage interest deductibility:
|Mortgage Amount||2018 Deductible First-Year Interest||Vs 2017 Deductible First-Year Interest||Vs 2018 Standard Deduction for Married Joint Filers|
|Deductible interest based on the first 12 months of interest paid for a 30-year mortgage at an assumed rate of 4.32%. Higher mortgage rates will lead to higher deductible interest.|
Additional Costs of Home Ownership
Once you’ve purchased your home, there are additional costs that have to be factored into your budget, so before you commit, get to know what is likely to dent your bank balance.
- Property tax – The amount you pay varies by state, but the average payment in 2016 was in the region of $3,296. According to USA Today, the total paid that year was $278 billion.
- Insurance – You have to factor in the cost of insurance, especially if you want to protect your home from fire, flood, or crime.
- Ongoing maintenance – No one wants their home to be the worst in the street, so you’ll need to factor in the upkeep of the property.
- Utilities – If you want gas, electricity, and running water, you have to pay your utility bills. According to the website EnergyStar, a typical family spends upwards of $2,060 a year on utilities.
- Home improvements – At some point you are going to want to extend, refurbish, landscape the garden, update the air conditioning, and so on, all of which costs money.
Nobody said owning a home was easy, or cheap, but owning a home can also be a rewarding experience that comes with a sense of pride as part of the American dream. Just get the sums right, and enter into home buying process with open eyes and a clear idea of expectations.