If you’re thinking of making a home purchase it is important to keep these critical considerations in mind.
How long you plan to live in the home?
If you decide to move after only a short time or get a job transfer after you’ve purchased a home it may cost you more money to sell it. Your home may not have appreciated in value enough to meet the costs it would take you to sell your home and you paid to purchase the home.
Depending on a variety of economic factors in the area of the home can determine the length of time that it will take to cover those costs. An average of 5% appreciation per year occurs in many parts of the country. To cover buying and selling costs you should plan on living in your home for at least 3-4 years in this case. In areas that may experience an upturn in the economy the length of time would be shortened to cover these costs.
How long the home will meet your needs
What’s your lifestyle? What features will you need in your home to meet your current lifestyle? Four years from now? You’ll want to make sure that depending on how long you plan to live in your home that it has the conveniences that you want. For example could the basement be turned into a family room or extra bedrooms? Could you add a master bedroom suite or bathroom in the attic? Consider a home with room to grow if you’re a young couple with no children but plan on starting a family. Having some ideas of what you want will be very beneficial in helping you find a home that will satisfy your needs for years to come.
Consider your credit, home affordability and financial health.
Is this the right time for you to buy a home financially? How do you rate your financial picture right now? Is it healthy? How’s your credit? There are always lenders you can find to lend you money but solid mortgage brokers and lenders will be more skeptical if you do not have a good credit history. If there are just a couple of blemishes on a credit report typically this could qualify you for a low interest rate home loan program and will make you a good credit risk. If your lender finds more than a couple of blemishes on your credit report you may still qualify for a loan but the interest rates and fees you pay could be higher.
There are a couple of schools of thought when it comes to borrowing. One is that you should restrain from borrowing the maximum amount you qualify for because it is more prudent not to extend yourself beyond your means. The second says because of an increased earning potential and with regular pay raises you should extend yourself to buy as much of a home as you can afford as the bigger payment today will appear like less of a payment tomorrow. Only you can make this decision.
Are you in a situation where you will be making more money soon? Would you rather be cautious and reasonably certain that you can make your payment with extending yourself financially? Whatever you do make sure it’s within your comfort zone.
In order to establish how much home you can afford to buy talk to a mortgage broker or lender. Depending on your credit history, income, debts, assets, job potential and other factors they can advise you about the best options available to you in home loan programs.
Where will the money for the transaction come from?
In the majority of purchase home buyers will typically need some money for a down payment and closing costs. With the wide range of loan options available today it is not always necessary to have a lot of saved for a down payment if you can show that you are a good financial risk. If your credit isn’t top notch but if you have been able to save a down payment of 10-20% a lender could still see you as a good financial risk.
The ongoing costs of home ownership.
Costs added to your monthly house payment are taxes, insurance, improvements and maintenance. If you purchase a townhouse or condominium there is a monthly HOA (homeowner’s association fee) required. Talk to your real estate agent and lender to let them know of your wish to limit or avoid these fees if they are a concern.
After taking all of things involved in a home purchase into consideration it is a good idea to consult with a financial planner or accountant to help you evaluate how the purchase of a home fits into your financial goals overall.