Home Ownership: Are You Ready?
Most people dream of owning their own home but buying and maintaining a home is a long-term commitment. We’ve compiled this list of things to consider before you take the first step towards home ownership.
Is Home Ownership Good Financial Decision For You?
The main decision you need to make before you buy a house is whether not it makes financial sense. If you are going to stay in your home for the long term, buying is usually the best way forward. If you think you will be leaving your home very shortly, it may be cheaper to carry on renting. Whatever you decide it must be right for you; when it comes to buying a home, taking on a mortgage or loan or dealing with real estate it is a very personal decision.
Do You Have the Money?
to buy a house you will need to raise a down payment as well as paying the monthly mortgage costs. A mortgage is a long-term financial commitment, usually lasting from 5-30 years. There are a few other costs involved with house-buying but these are the 2 largest to be considered:
Finding the Down Payment
The down payment is required by the lender to show that you have raised some equity in the property and are invested and committed to owning your own home. The preferred amount for a down payment is 20% and this is what will get you the best rates, however, this is flexible and some lenders will accept down payments or around 3%.
Sometimes a home buyer can fund the down payment with loans or gifts: from friends of family. If you have the opportunity of a financial gift then use this to cover the down payment rather than a loan. Any loan, even if it is from a family member, will be used when the lender calculates your loan and it could make all the difference to your debt-to-income ration which must be under 43%.
Meeting the Mortgage Payments Each Month
The mortgage repayment includes interest on the loan as well as the loan principal plus it often adds on insurances and property taxes. In the past, you had to have a good credit rating to apply for a mortgage but this is now more relaxed. However, you will still need to be employed, responsible, and credit worthy for a lender to consider your application.
Consider the Extra Costs of Buying a Home
There are a number of costs that need to be saved for in addition to the down-payment. These can vary so be sure to discuss this fully with your Realtor:
Private Mortgage Insurance: especially if you have a low down-payment.
Homeowner’s Insurance: this includes personal liability and hazard insurance. You need to have this in place before closing.
Title Insurance: protects the lender if there is an issue. You can also buy this for yourself.
Appraisal Fees: the appraisal is a requirement to justify the price of a home and is needed so the lender can make sure the house is worth what you are offering.
Escrow Fees: this collects fees for homeowner’s insurance and property tax and then pays them out on their due dates. It also holds money while the buyer and seller close the deal.
Origination Fees: paid to the bank or lender, usually around 1% of the loan.
Credit Report Fees: this is usually around $25 and is always required by any mortgage lender.
Document Preparation Fees: covers the costs of providing all the documents and the paperwork needed to finalize the sale.
Survey Fee: this shows the boundaries of the property and a number of details. If there isn’t one on record you will have to pay to have one done.
Pest or Mold Inspection: this may be applicable for an older property and often costs between $200-$500.
Property Taxes: any fees for property, sewer, water or municipal taxes have to be placed in escrow before closing.
State Recording Fees: these vary from state to state.
It is worth noting that you may not need to pay all of these fees but they are worth bearing in mind and doing some research in order to establish if you can financially accommodate these.
Consider Your Emotional Readiness
Owning your own home: means being able to take a lot of important decisions; anything and everything from the neighborhood where you will be living, the type of property, selecting a real estate agent and even choosing paint color and carpet.
When you rent a property: it is the landlord that takes care of all of the really important decisions regarding the property as a whole, any maintenance that needs doing and keeps everything running smoothly. Once you buy your own home you take over all of these tasks yourself.
A home needs a lot of time: and energy as well as financial investment and weekends will often be taken up on routine maintenance and all the chores that are part of taking care of a property. This is your biggest investment so although it can be difficult, owning a home can also be very fulfilling.
Do You Have Basic Maintenance Skills?
Once you own your own home: you are responsible for the maintenance and repairs. You no longer have the option of calling your landlord and constantly hiring people to carry out routine or basic tasks can prove expensive. Before you buy consider looking at developing some of these key skills:
- Disconnect water valves and faucets
- Gutter clearance and maintenance
- Finding studs in walls for hanging shelves
- Test smoke detectors and change batteries
- Changing furnace filters
- Changing toilet flappers
- Dealing with breaker switches
- Painting, decorating and other small household tasks
If you think you may be lacking: in some of these skills you might consider signing up to a few classes or getting a handy family member to give you some lessons. The costs of constant minor repairs can seriously mount up over time so any investment of time, or money, before you commit to a home is worthwhile.