Buying a home is a significant long-term financial decision, which comes with pride and fulfillment. Yet, this milestone can also become a debt trap by affecting your financial stability. Therefore, you should consider a lot of factors and make the right decisions and choices when embarking on this journey.
Technological advancement has made searching and buying a home much easier. In the comfort of your sofa, you can scroll through various home listings and choose the best option. However, certain factors must be well outlined before starting the process. From accessing your financial readiness to buying the right home, here are some factors to consider before buying a home.
As already stated, buying a home is a huge financial commitment; and even if you are relying on a mortgage loan, you still need to cough out a down payment. After closing the deal, where a lot of money has already been spent, that is where the real cost of owning a home begins. You may need to buy homeowners insurance, a home warranty, and pay other assessment fees. Compulsory payments like property taxes, and utilities, are all waiting for you, not forgetting maintenance and repair costs.
Maintenance and repair costs will be some of the major expenses throughout your home ownership. And of cause, you cannot avoid them unless you want your home to deteriorate and lose value.
Therefore, be financially sound and ready before you try buying a home. Consider your income, savings, debt-to-income ratio, and credit score, if you will be using mortgage financing.
A mortgage is a loan plan which offers home buyers a long-term loan to purchase a home. So, you just need to make a down payment and the lender will pay the remaining cost. The loan and interest will then be spread to you for monthly payments. Loan duration is mostly between 15 to 30 years depending on the type of mortgage.
Using a mortgage for home financing cushions you from any financial stress in your quest to own a home. However, the lender has the legal right to take over the home if you default on the loan repayment agreement.
Now are you looking for a family home or something just for yourself? For a family home, you should consider a large or intermediate house depending on your family size. Options include single-family detached houses, townhouses, or duplexes. A single person on the other hand can go in for a Conoclinium, studio apartment, or a one-bedroom apartment. If you can afford a large home as a single person, just go for it and enjoy all the luxury that comes with it.
Credit score: Your borrowing behavior and payment history determine your credit score. Before a lender agrees to finance your home, they first check your credit score to decide if you are credit-worthy. The higher the score, the better your chances, and the possibility of attracting a lower interest rate. A lower credit score means you would have to pay more for the mortgage.
Debt to income ratio: This is your total debt compared to your income. For example, if your total debt payment for a month is $2000 and you are earning $8000 a month, your debt-to-income ratio is $ 25%. Debt-to-income ratio for a mortgage facility is mostly around 30% to 43%, depending on the type of mortgage.
In addition, consider the monthly mortgage payments, property tax, and the many other costs associated with owning a home. Ensure that your budget wouldn’t have any dire future consequences on financial stability.
So, can you afford the 5% to 20% down payment without it affecting your finances? You will need to have enough savings and be well prepared to commit such funds.
Take all current and future expenses into consideration before buying a particular type or size of home. This will greatly save you from future financial stress.
In such a situation, how easy or difficult will selling the property become? It is therefore advisable to buy a home with higher resell potential. A home with low resale potential attracts lower value. This is where the location of the property comes in.
Things to consider include access to social amenities, like a hospital/clinic, schools, water, a shopping center, a good road network, etc. Also, research the security status of all potential neighborhoods. Is it prone to gang violence, robberies, and other vices? Or it is a peaceful and serene area, with less crime? With all things being equal, always choose a neighbourship with less crime for your peace of mind and security.
Another important thing to consider when choosing a neighborhood is your lifestyle, preferences, and personality. Are you the indoor type or an outdoor person? If you are the outing type and enjoy the nightlife, buy in a neighborhood that caters to such interests. Similarly, if you value your personal space and serenity, buy from a location that offers that like a gated community.
Technological advancement has made searching and buying a home much easier. In the comfort of your sofa, you can scroll through various home listings and choose the best option. However, certain factors must be well outlined before starting the process. From accessing your financial readiness to buying the right home, here are some factors to consider before buying a home.
Financial readiness
As already stated, buying a home is a huge financial commitment; and even if you are relying on a mortgage loan, you still need to cough out a down payment. After closing the deal, where a lot of money has already been spent, that is where the real cost of owning a home begins. You may need to buy homeowners insurance, a home warranty, and pay other assessment fees. Compulsory payments like property taxes, and utilities, are all waiting for you, not forgetting maintenance and repair costs. 
Maintenance and repair costs will be some of the major expenses throughout your home ownership. And of cause, you cannot avoid them unless you want your home to deteriorate and lose value.
Therefore, be financially sound and ready before you try buying a home. Consider your income, savings, debt-to-income ratio, and credit score, if you will be using mortgage financing.
How to finance the home
How you will finance your home is one of the first decisions to make when buying a home. There are two main ways to finance a home, a mortgage loan or an outright payment. Which of these methods of payment fits your current financial situation?A mortgage is a loan plan which offers home buyers a long-term loan to purchase a home. So, you just need to make a down payment and the lender will pay the remaining cost. The loan and interest will then be spread to you for monthly payments. Loan duration is mostly between 15 to 30 years depending on the type of mortgage.
Using a mortgage for home financing cushions you from any financial stress in your quest to own a home. However, the lender has the legal right to take over the home if you default on the loan repayment agreement.
Know what you want
As you consider purchasing a house, you should have a preferred type of home. Some first-time home buyers find themselves in a dilemma when it comes to this. Factors including purpose, personal preferences, budget, lifestyle, location, and available amenities must count in the type of house you want. Most importantly, what you want must be something that fits into your budget.Now are you looking for a family home or something just for yourself? For a family home, you should consider a large or intermediate house depending on your family size. Options include single-family detached houses, townhouses, or duplexes. A single person on the other hand can go in for a Conoclinium, studio apartment, or a one-bedroom apartment. If you can afford a large home as a single person, just go for it and enjoy all the luxury that comes with it.
Set a budget
Before you start shopping for a home, have a budget. How much home can you afford? The budget should be comprehensive enough, taking into consideration your current and near-future financial plans. It should be such that, it won’t ruin your finances nor affect other obligations. If you are using a mortgage, consider your down payment, credit score, debt-to-income ratio, and salary, since your lender will use that in determining how much you can get.Credit score: Your borrowing behavior and payment history determine your credit score. Before a lender agrees to finance your home, they first check your credit score to decide if you are credit-worthy. The higher the score, the better your chances, and the possibility of attracting a lower interest rate. A lower credit score means you would have to pay more for the mortgage.
Debt to income ratio: This is your total debt compared to your income. For example, if your total debt payment for a month is $2000 and you are earning $8000 a month, your debt-to-income ratio is $ 25%. Debt-to-income ratio for a mortgage facility is mostly around 30% to 43%, depending on the type of mortgage.
In addition, consider the monthly mortgage payments, property tax, and the many other costs associated with owning a home. Ensure that your budget wouldn’t have any dire future consequences on financial stability.
Down payment
You cannot escape a downpayment if you are financing your home with a mortgage. Conventional mortgages often require a down payment of around 5% to 20% of the home's price. To avoid private mortgage insurance (PMI), you need to put down at least 20 percent of the home’s selling price. Some lenders offer mortgages without a PMI but it comes with higher interest.So, can you afford the 5% to 20% down payment without it affecting your finances? You will need to have enough savings and be well prepared to commit such funds.
Homeownership cost
There is more to owning a home than the initial down payments, and closing costs. The real deal begins when the seller hands over the keys. A mortgaged financed house will require homeowners insurance to cover the asset against damages. You may also need a home warranty, which also comes at a cost. A home warranty saves homeowners from expensive repair costs. You may be asking, but does home warranty cover appliances? Yes, a home warranty from companies like Cinch Home Services can cover home appliances and systems. All you need is to file a claim when a covered appliances break down. Be prepared for other payments like property tax, homeowners association (HOA) dues, assessments, etc.Take all current and future expenses into consideration before buying a particular type or size of home. This will greatly save you from future financial stress.
Resale potential
It is critical to consider the resale potential of the home you want to buy. At a point in life, you may want to sell the property for a new one. This can be due to work transfer, or you wanting a change of environment. Other factors like getting a larger home due to an increase in family size, or wanting to downsize can necessitate selling your home.In such a situation, how easy or difficult will selling the property become? It is therefore advisable to buy a home with higher resell potential. A home with low resale potential attracts lower value. This is where the location of the property comes in.
The location
Where you buy a home is of major importance when it comes to future resale value, security, and access to amenities. The location and its development prospects can determine future appreciation or even depreciation of the property value.Things to consider include access to social amenities, like a hospital/clinic, schools, water, a shopping center, a good road network, etc. Also, research the security status of all potential neighborhoods. Is it prone to gang violence, robberies, and other vices? Or it is a peaceful and serene area, with less crime? With all things being equal, always choose a neighbourship with less crime for your peace of mind and security.
Another important thing to consider when choosing a neighborhood is your lifestyle, preferences, and personality. Are you the indoor type or an outdoor person? If you are the outing type and enjoy the nightlife, buy in a neighborhood that caters to such interests. Similarly, if you value your personal space and serenity, buy from a location that offers that like a gated community.