Purchasing a home is exciting, but it’s also a fairly involved process that most people don’t go through many times in their lives. If you’re currently searching for a home, or just starting the homebuying process, here are 8 things you should consider:
1. Price and Affordability. First and foremost, you should ensure that you can comfortably afford any home you make an offer on. Take into account not only your mortgage payment, but other ongoing costs as well, such as property insurance, real estate taxes, and regular maintenance and repairs. All of these expenses should be factored in when calculating the expected monthly cost of owning the home. Make sure this amount will fit within your monthly budget, along with any other debts and financial commitments you currently have. A mortgage calculator can help you determine how much house you can reasonably afford.
2. Down payment Amount. Your down payment plays a significant role in your monthly mortgage payment and the overall amount of interest you’ll pay over the life of the loan. The larger your down payment, the smaller your loan and monthly payments will be. A 20% down payment is typically the minimum required to avoid private mortgage insurance (PMI). This is an additional fee that most lenders require if you have less than 20% equity in your house. If you can’t afford much of a down payment, there are ways to buy a home with a low or no down payment. Several government programs make this possible on certain properties.
3. Local Property Taxes. Property taxes can significantly impact your overall housing costs. These are based on your property’s assessed value and the local property tax rates. Property tax rates can vary significantly between towns and cities, so it’s a good idea to review the rates of any areas you’re interested in buying in. You can find out what local property taxes are by contacting the town or county clerk or asking your real estate agent. Find out how much the property taxes will be, and divide the annual amount by 12 to understand the monthly property tax amount that will likely be added to your mortgage payment.
4. Financing Options. It’s important to choose the right home loan. Different mortgage programs have varying interest rates, terms, and down payment requirements. Knowing your available options ahead of time can help you better decide which mortgage product might be the right fit. You can also meet with a mortgage professional to review your options and find a home loan that best suits your financial situation. Getting pre-qualified for a mortgage can help move the buying process along as well.
5. Home Inspection. Although there has been news of home buyers waiving their home inspections in recent years, it is not typically recommended. A professional home inspector will thoroughly evaluate the property's condition, identifying any potential issues that may not be immediately apparent. Although the buyer is typically responsible for the cost of a home inspection, the information provided by one can be invaluable for negotiating with the seller and ensuring that you know what you’re getting into by purchasing the property.
6. HOA Fees and Rules. If you’re considering a property within a community governed by a homeowner’s association (HOA), be prepared for additional fees and rules. Depending on what type of community the home is located in, monthly HOA fees could range anywhere from a couple of hundred dollars to thousands. Although HOA fees usually come with some added perks such as landscaping or trash removal, the benefits might not outweigh the cost if you have a tight budget. Homeowners’ associations may also place limitations on what you can and cannot do with the home. These restrictions might not be worth it to some buyers.
7. Flood Insurance. If the property is located in a flood zone, you’ll likely be required to purchase flood insurance. This is a standard requirement for most mortgages if the house is being financed and is in a high-risk zone as determined by FEMA. Your mortgage lender can help you determine if your property will require flood insurance, and how much it will impact your monthly payment.
8. Crime Rates and School Districts. Most home buyers want a house located in an area with low crime rates, and many will be looking for good schools if they have, or are planning to have, kids. Crime rates and school performance ratings can affect your home’s long-term value as well. Low crime and good schools can lead to faster appreciation -- and more equity building up for you. Conversely, high crime and bad schools can limit how quickly you gain equity in the home. There are many online resources that can give you a sense of school ratings and crime rates in a given area.
Searching for a home can be overwhelming, but being aware of the costs associated and what questions to ask can help give you a clear mind going in. Once you are ready for the financing aspect of buying a home, BankFive can help. Review your home financing options and schedule a consultation with our dedicated team of mortgage experts to start the process.