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Are you and your spouse expecting your first child and want to buy a home? Or maybe you are just sick and tired of paying someone else’s mortgage and you are ready to get out of the renting cycle. Whatever your circumstances, it’s a personal decision that you should not make with haste. Homeownership comes with many additional expenses. Listed below are a few things to consider before making your decision.
Make Sure You Are Gainfully Employed
Recent events prove that even people with lucrative careers can become unemployed on a moment’s notice. However, in the eyes of a lender, two years or more with the same company puts you in a good position for loan approval.
The Type of Home
Most people go blindly into the home-buying process without knowing what they are really looking for in a house. They don’t understand the difference between the purchase of a new home versus an older home.
Older homes often require updates, many of which will require a contractor. If you decide to live in something a bit aged because of the lower cost, character and location it’s important to find a reputable contractor. You can verify whether or not a contractor is good by checking the Networx reviews. A new or newer home will require less maintenance and has many amenities that provide convenience and lower utility bills.
The Down Payment
Banks want home buyers to have a 20% down payment. While they may accept less, 5% or 10%, they will add private mortgage insurance (PMI). That can increase your mortgage monthly payment by a few hundred dollars. The added cost will remain in effect until you pay down the mortgage by 20%.
Closing Costs
There are many fees due at the time of closing. This can include things like a loan origination fee, inspection fee, points, appraisal, and escrow for taxes and homeowner’s insurance. Closing fees can be $10,000 or more depending on the home’s cost and location. If you qualify for a government loan, the seller may cover the costs or you can work them into the mortgage.
Credit Score
When it comes to buying a home the higher the credit score the better the chance of getting an approval for a loan. It’s important to check your score prior to getting a pre-approval. If it’s lower than what banks recommend, you can raise the score.
For a conventional loan you’ll need at least a 620. However, you can qualify for an FHA loan with a lower score. Keep in mind that with a better credit score you’ll have access to the lowest interest rates, helping save thousands over the duration of the loan.
Plan to Live in the Area
Buying a home is for many the largest expense of their lifetime. If you’re uncertain about remaining in the area for at least five or more years, now might not be the best time to buy a home. It takes at least that long to build equity and there’s no guarantee that when you’re ready to move, that it will become a seller’s market.
Debt Under Control
Lenders review your credit score and check for things like timely payments and a low debt-to-income ratio. If you owe out large sums on credit cards, reducing the debt will benefit you in several ways. First, it will raise your credit score within a few months. Second, you’ll free up money that will allow for furnishing the home or extra money on hand monthly.
Security
Without savings, buying a home is not wise. Homeownership comes with many unexpected expenses. Unlike renting where something breaks and you call maintenance, you handle all repairs. You should have at least 3 months’ worth of the estimated monthly bills and expenses in reserve.
Deciding on whether to buy a home is something to decide on after careful consideration. Knowledge of what to look for in a home, your credit score, and all costs associated with the purchase are all things to consider ahead of making a commitment.