11 Things to Know Before Buying a House

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11 Things to Know Before Buying a House

11 Things to Know Before Buying a House

If you’ve been thinking it’s time to buy a house, but you’re not quite sure where to start, we’re here to help you identify the top things to know before buying a house. This way you can go into the home buying process with a clear path forward. Preparation and planning sets a solid foundation for successful home ownership. We’re here to give you the keys to the important things you need to know before getting the keys to your new home.

 

Your Credit Score

Before you enter into the home buying process, the best thing you can do for yourself is making sure you know where your credit stands. Your ability to get approved for a mortgage loan hinges on your credit score, so you need to know it for yourself before reaching out to a lender to start the mortgage process or contacting a real estate agent to start viewing homes. You can request a free copy of your full credit report from AnnualCreditReport.com. When you review your report, you can make sure there are no surprises that would affect your chances at being approved for a mortgage. Removing or correcting any errors from your report can work wonders for your credit, and you want to make sure your credit is in the best shape possible before applying for a mortgage loan.

 

How Much Home You Can Afford

The home you buy should fit comfortably into your budget, without having to make too many sacrifices. To get an accurate sense of the true cost of a home, you have to remember that the purchase price is only one part of the financial commitment of buying a home. There are other home buying expenses you’ll also need to calculate, like taxes, insurance, maintenance and upkeep costs, loan costs, and other costs and fees. We’ll take a closer look at some of these expenses so you can get the full picture of the cost of buying a home. Our free Home Loan Calculator will help you get an idea of how much you can afford and is a great place to start helping you build your budget.

 

  • Remember: If you try to exceed your means in the initial phases of your home search and fall for a home with a purchase price outside of your budget, you’re only setting yourself up for a struggle from that point forward. You’ll not only have to sacrifice other areas of your overall budget to ensure you can make your monthly mortgage payment, but your already stretched-thin budget will then have to stretch even further to cover any additional costs that inevitably come up, like your AC going out ,or an appliance breaking, or the roof needing repairs. Part of being a homeowner means preparing for the unexpected so that it doesn’t derail your finances when you have to cover an unplanned expense.

 

  • The golden rule: Your total housing costs shouldn’t exceed 30% of your income. So if you calculate the total expenses associated with buying a home it’s over 30% of your total income, 35% at the most, you need to reevaluate how much home you can afford and start looking for homes in a lower price range.

 

The Total Cost of a Mortgage Loan

Many home buyers hone in on the interest rate of the mortgage loan as the most important factor of the loan, but it’s important to keep in mind all of the other costs associated with a mortgage loan so you get the full financial picture. When comparison shopping for mortgage offers, remember to compare the full picture, not just the interest rate. You’ll also need to factor in these other costs and fees:

  • Application fees
  • Appraisal fees
  • Credit report fees
  • Underwriting fees
  • Mortgage points
  • And remember to carefully review the terms and conditions on any loan estimates you receive, looking out for things like balloon payments or prepayment penalties, as those may cost you in the long run.

 

How Much You'll Need for a Down Payment

When it comes time for your mortgage closing, you must have enough cash on hand to cover your down payment. The amount needed will depend on things like the type of mortgage loan you’ll have as well as the purchase price of the home. The down payment amount for a standard mortgage loan is 20% of the home’s purchase price. There are also special mortgage programs you may qualify for, like VA loans or FHA loans and even special programs for first time homebuyers that typically require a lower down payment, sometimes even as low as 3-5% of the home’s purchase price. However, if you don’t put 20% down, you will have to have Private Mortgage Insurance, or PMI, until your loan-to-value (LTV) ratio reaches 78%. PMI typically costs between 0.5%-1% of the total loan amount. With or without PMI, a down payment will require a good portion of your savings, so you need to make sure you have enough saved to cover it.

 

The Cost of a New Home vs. an Older Home

There are going to be savings and costs whether you buy a newer home or a much older one. Newer homes often have a higher upfront cost than older homes. But with older homes, there’s typically much more maintenance and upkeep involved than with a newer construction. With an older home, you’ll need to consider the age of the roof, interior and exterior paint, fencing, any appliances that came with the home, etc. If you’re wanting to fully renovate an old home, that comes with an even bigger price tag. Take all costs into consideration to be sure it still makes sense for you to buy that home.

 

The Cost of Property Taxes

Property taxes can vary widely depending on your location. Check out current rates as well as historical data so you’ll know what you can expect to pay. You can use an online calculator to help you estimate your taxes. Prepare for changes in the future though – the value of your home will ideally rise over time, which means your property taxes will rise with it. If your property taxes go down, it’s because the area your home is in is losing property value. Though there’s no way to predict what the future holds for your home, crunch some numbers to estimate the property taxes on a home that rapidly increases in value, and see if you’ll still be able to afford that 10 years from now.

 

The Cost of Homeowners Insurance

Homeowners insurance definitely needs to be factored into your overall budget for buying a home. Just like with property taxes, homeowners insurance can vary widely by location. For example, if you live in a flood zone, you’ll need to purchase additional flood insurance since that is not covered by typical homeowners insurance. Take some time to look into what insurance covers and what you need so you can have an accurate idea of the cost.

 

HOA or Other Fees

If the home you’re eyeing is in a new development, odds are there will be HOA fees to factor in. Or if the community has extra amenities like a gated entrance or a pool, there may be exclusions or add-ons required to use the amenities. HOA and other fees aren’t necessarily good or bad, but it is an important to cost to consider when evaluating the total cost of your new home. Look into the following questions to help yourself get a clear picture of any associated fees:

  • Are there any exclusions or add-ons required to use all the amenities?
  • Are there HOA fees? If so, how much are they?
  • Is there a built-in rate increase every year?
  • How much will your HOA fees cost per year? How about over the lifetime of the home?
  • Are there additional requirements outside of the HOA, such as landscaping or pest control costs, that you must take care of in order to remain in good standing with the HOA?

 

Tax Exemptions

One of the tax exemptions you may qualify for is the homestead exemption, which indicates that the home is your primary legal residence and is not being rented out. Check your county’s requirements for homestead and any other tax exemptions or deductions you may qualify for. You will have to discover these for yourself, the county is not going to automatically inform you of any tax exemptions. By doing a little research, you could save yourself a sizeable sum of money.

 

Commuting Costs

You may have found the perfect home at the perfect price, but don’t forget to factor in the cost of your commute. Consider not only the cost of gas, but also the cost if you will be racking up more miles. If you’ll be driving more, that will accelerate your car maintenance timeline, so you’ll want to factor in those costs too. Also consider if you’ll be needing any monthly transportation passes, or regular costs for toll roads, etc. And remember to factor in your time as well as your money when evaluating the cost of your commute. Spending an hour or more on the road both ways may not seem worth it after a while.

 

The Quality of Your Schools

If you’re a parent, or thinking of becoming one, you’ll want to pay special consideration to the school system your new home will be zoned for. You want a great school and quality education for your children. A better school system can easily sway you to choose one home over another. Do your homework on the local schools in your area. But keep in mind that better school systems can sometimes mean higher tax rates. Take all factors into consideration and decide what’s most important to you and your family.

 

Next Steps

 

 

 

At Robins Financial Credit Union, our mission is to enhance the financial well-being of our members and community. We honor this commitment by providing educational content to help you make the most of your finances. Read our other blog articles to help you gain the financial knowledge you need to succeed.

 

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