Buying a house is a huge decision to make. Not just because soaring property prices across the country mean that purchasing a home is a big financial commitment. But because there are a whole ton of things that you need to keep in mind and consider, from the type of mortgage that you qualify for to the location of your dream home to budgeting for repairs and improvements.
You can’t and probably shouldn’t think about all of these things all the time, but you should certainly have some familiarity with each of these major concepts. And you should consider them at least a little before signing on the dotted line. The more you educate yourself on what to keep in mind when buying a home, the less likely you are to forget something obvious, and the better you will position yourself to avoid heartbreak and hassle down the road. So without further ado, here are the most important things you should consider when buying a house.
1. What Type of Mortgage Do You Qualify For?
Convention bank loans from a qualified lender will look similar all around the country because smaller brokers usually repackage loans and then sell them off to big banks. We will talk more soon about the specifics of any mortgage, like the interest rates and the down payment you will need to have saved up. But before jumping too far into details, it’s important to realize just how many different types of mortgages are out there and to think a bit about what you may qualify for.
Conventional mortgages will cover the price of most homes, and are tightly regulated these days so that they look pretty similar as far as terms go no matter where you apply. Jumbo mortgages will help you buy homes that are more expensive than the average in your area. FHA loans are specifically targeted at low-income individuals and have lower down payment requirements. VHA loans are specifically targeted at veterans. There’s a whole lot out there to choose from.
2. Down Payments
Before you purchase a home, you will need to save up some cash in order to make a down payment. Most conventional and jumbo mortgages will cover up to 80% of the value of your home, meaning you need to have 20% cash on hand to make a down payment. FHA loans only require a down payment of around 3.5%, so if you qualify for one of these low-income specific loans, you won’t have to save nearly as much.
Different lenders have different requirements for down payments, so you will need to talk to a broker in your area to get a specific idea of how much cash you will need to put up. And remember that in addition to a down payment, you will also have to have cash on hand to cover closing costs and other fees, though your down payment will be by far the largest you have to shoulder.
3. Credit Score
Every mortgage application in the country will screen your credit score though qualifying numbers will be different depending on your area and your specific situation. If you have bad credit, there are still options for you, though you may end up having to pay a higher down payment to make a purchase. Some lenders will also let individuals with established investment portfolios put their other holdings up for collateral in a Portfolio Loan, which could also make it easier for you to qualify if you have low credit.
4. Interest Rates
When you borrow money through a mortgage to cover the cost of your home purchase, you will be paying interest on that loan regardless of what kind of loan you find. Luckily for home buyers, the current market offers some very low interest rates, and buying a home is a lot less expensive as far as interest goes than most people would imagine.
There are two larger categories of mortgages that you may have heard people discussing in relation to interest rates: adjustable rate and fixed rate mortgages. Fixed rate mortgages usually have a slightly higher interest rate, but they can be a more stable and predictable option long term, because you will get an interest rate locked in and that rate won’t be able to rise in the future. When rates are lot like they are now, fixed rate mortgages are especially attractive.
Adjustable rate mortgages usually have lower interest rates to start, but after an initial fixed period they will index to the market every year. When rates are high, your interest may go down in the future with an adjustable rate mortgage, but often you will end up paying higher interest rates the further into your mortgage you go.
5. Could You Rent Your Property Purchase in the Future?
Even if you intend to live in the property you purchase initially, it’s a good idea to consider rental possibilities down the road. Renting a property can be a great source of stable income, and if you choose to move in the future but are in a stable enough financial position to keep your current home, renting it out could be a great option. Even if you are buying your first home to live in, looking at things like public transportation access, proximity to schools, and other factors that make a property easier to rent down the road is always smart.
And if you do intend to rent a property out down the road, keep in mind as well that the interest that you pay on your mortgage will likely be tax deductible. Once a home changes from your primary residence to a source of revenue, you will be able to write off a lot of expenses as a landlord, and the interest paid on your mortgage is usually one of those.
6. Other Fees
The purchase price of your home will be the most expensive thing you have to finance when acquiring property, and the mortgage payments on your home every month will likely represent one of your largest expenses. But there are quite a few other fees to keep in mind. Property tax will cost you, and your rates will depend on where you buy. Mortgage insurance and Home Owners Insurance will both add a bit toy our monthly bills. And depending on where you live, you may need to pay Homeowner’s Association Dues as well.
7. You Buy Your Neighbors!
Your future house isn’t just brick, wood, and concrete: it’s part of a community. And the people that live around your future home will have a big impact on your experience there. Remember that when moving to a new area, your neighbors don’t happen by accident. You buy your neighbors when you choose to move! Looking into different community activities and resources can be a good way to gauge how involved your neighbors will be in the community, and help you weigh this consideration.
8. Location, Location, Location
It’s one of the enduring mantras of real estate, and for good reason. You aren’t just buying your neighbors; you are buying proximity to everything else in your life. How far are you willing to drive to work? How important is is that you are close to your family? Where is your potential future home in relation to your most frequently visited locations? Keep all of these things in mind when buying a home, or you will end up regretting your oversight.
Depending on your level of comfort with a “fixer upper,” a home that needs some serious repairs could be a diamond in the rough or a total nightmare. Before falling in love with any home, think seriously about what repairs need to be made, and your capability to either do them yourself or pay someone else to do them. There’s a lot that can go wrong in a house, and if you don’t think about what needs to be fixed before signing on the dotted line, you are in for a world of unpleasant surprises.
Even if your potential future home is in good condition when you buy it, you have to think about future maintenance costs and how they will impact you financially. Maintenance costs will fluctuate wildly depending on where you live and the condition of the home you buy, but they will never be as low as the costs of renting an apartment. So before buying that first house, make sure you are ready to keep paying to keep it in good condition.
Think Ahead and Set a Budget!
If the ten considerations prove anything, it’s that you need to think ahead as much as possible when purchasing a home. But beyond just keeping these considerations in mind, you need to start thinking about setting a budget. Give yourself a set amount for improvements, upgrades, furniture prices, and everything else you will want to spend on when moving in. But think about the long haul too, and start considering just how fast all of these different things above can add up. The more you think about your future home purchase now, the more satisfied you will be with your new home.