6 Things to Consider Before Making a Home PurchaseJanuary 16, 2018
Have you found the home of your dreams and ready to make a home purchase? Or are you planning to buy a home in the near future? If so, we’re thrilled for you. Buying a home is something most of us do only a few times in a lifetime. And we understand that it can be both exciting and a little scary too. After all, it’s not every day that we make such large purchases which we have to live with for long periods.
Recently we came across an interesting article in realtor.com that listed some things that financial planners wished homebuyers knew before they bought their homes. We wanted to share several of these with you, as well as a few other tips.
Stay Within Your Budget
Financial planners say that a lot of people buy more home than they can really afford. And that can result in stress later down the road. Nerdwallet.com features a free online home affordability calculator that gives you an estimate of how much home you can afford based on the area where you’d like to live. Many other sites feature similar calculators as well.
Consider All Costs of the Home
The financial planners interviewed by realtor.com recommended that new homeowners set aside some money in an emergency fund to cover the costs of unexpected things that may go wrong with the home. They said homebuyers should also consider the regular costs associated with living in the home they are purchasing, such as utilities and services like garbage pickup. They should also factor in property taxes and insurance costs, which are often wrapped into monthly mortgage payments.
Be Careful About Spending
While you are home shopping or between the time when you sign a home contract and close on it, avoid overspending. Making large purchases, going on spending sprees or running up credit card debt can result in changes to your credit score and debt-to-income ratio. Such changes can impact your ability to get a mortgage with the terms you want or to qualify for a mortgage at all. Even buying items with cash can lower the reserves that a lender may require that you have in the bank.
Don’t Pay Bills Late or Open or Close New Credit Accounts
When you’re home shopping or in the process of buying a home, avoid paying bills late as this impacts your credit score. Opening or even closing new credit accounts or taking out new loans, on a car for example, can also change your credit score. And any changes to your score may impact your ability to qualify for a mortgage or to close on a mortgage.
Try to Make a 20% Down Payment
For conventional loans, it is ideal for homeowners to make a 20% down payment, even if that amount is not required. That’s because this eliminates the need for private mortgage insurance, which is an additional charge added to your mortgage payment, typically about 1% of the full loan amount.
Explore Down Payment Options
If a 20% down payment just isn’t in your budget, but you still have your sights on a new home, there are a lot of programs available that can assist first-time homebuyers by providing them with lower down-payment options. These include Federal Housing Administration loans and Veterans Affairs loans. And more homebuyers are also turning to alternate sources of funding like gifts from family members or crowdfunding. It’s usually a good idea to check with your lender first, however, to see what they allow before pursuing these alternate sources of funding. Also, regardless of your age or home buying status, financial planners do not recommend that you tap into retirement funds to cover a home down payment. If you’re under the age of 59½, you’ll have to pay a 10% penalty on the amount you withdraw, in addition to regular income tax that you’ll have to pay if the withdrawal is from a traditional defined contribution plan.
Lakeside Title Streamlines Real Estate Transactions
Lakeside Title Company provides title insurance and numerous title services carefully designed to streamline residential and commercial real estate transactions for lenders, realtors, buyers and sellers. To learn more about our comprehensive title-related services, give us a call at 410-992-1070. We look forward to the chance to serve you!