Finances are often the first thing on our mind when we’re considering buying a home. That’s not without reason, considering everything that can go wrong, especially if you go into it without the help of professionals. Still, owning a home is an essential part of the American Dream. But what are the financial factors to consider before you try to make it a reality?
As with any finance-based decision, you need to be very thorough in exploring your options. Let’s have a look at some of the factors you might want to consider:
1. Your Current Balance and Income
Estimating your budget can be difficult, especially once the perfect house comes into the mix and it turns out it’s a little more expensive than you can afford. You’ll need to pay the mortgage, so it might be wiser to look at your debt-to-income ratio rather than your overall balance. That way you can determine how much you can afford when it comes to mortgage payments. Try not to exceed 30-35% of your total monthly income in debt — including your other monthly payments, not only the mortgage. Of course, there’s also the issue of the down payment to consider, too, as well as property taxes and insurance costs.
2. State of the Property
This factor comes down to whether the place you’re looking at will need renovations — and how much those would cost. Always overestimate the renovation budget, because that way unexpected issues won’t be able to derail you completely. Consider how much work the house needs to be livable, and how much additional action would it take to make it into your dream home. Only you can determine whether it would be worth it or not.
Also, determine whether the type of work that the house requires would need to be done while the house is empty. If so, you might incur additional costs for storage or a temporary home until you’re done renovating.
3. Maintenance and Additional Costs
Even if you’re not renovating, you’re still the one who’ll be responsible for maintenance of the property. It’s good to budget for this as well, taking the state of the property into account. Evaluate whether the house will need work in the future, as well as how soon and what that might include.
There’ll likely be additional costs to consider, such as closing costs, home inspection, and the application fee. Many buyers overlook these to their detriment, and each can cost a few hundred dollars, which can add up.
Buying a house is a huge decision that takes a lot of forethought and planning. Most of it comes down to finance, but there’s also the matter of going through listings in search of a perfect home. The process could be much more comfortable with the right help.
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