For most people, buying a house is the largest purchase and investment they will ever make. The decision to purchase a home is one that should be well thought through, because it will impact your financial future. There are many advantages of owning a home, but those who purchase a home without some preparation may find their home becoming a financial burden. Below are important questions to consider before buying a house.
Do you plan to stay in the house for at least 3 to 5 years?
If you are not planning to stay in the home for at least three years, than purchasing does not make financial sense. Don’t forget that every time you close on a home, you will be expected to pay closing costs. By selling your home too quickly, you won’t have enough equity built up in the house to cover the price of the closing costs you paid when purchasing the house.
The other down-side of selling too quickly is that mortgages are set up so that you’re paying more in interest in the first few years than you are towards the end of your loan. It usually takes about the five years before you’ve paid enough towards the principal to make buying a home a better deal than renting each month.
Do you have a steady income or stable employment?
As previously mentioned, purchasing a home can have a huge impact on one’s financial situation, both for the good and in some cases for the bad. Having a steady income and job security will help to ensure that your mortgage payment fits in your monthly budget. In addition, lenders want to see that you have the ability to make your payments. Seeing a consistent employment track record makes them more willing to lend you their money.
Have you established a credit record and is it favorable?
Your credit score is an important guide lenders use to decide if they want to lend you money, how much money their willing to lend you, and at what cost to you they are willing to lend it. Lenders like to see that you’ve been using credit for some time and that you have a history of making your payments on time and in full.
Do you have enough money for a down payment, closing costs, and other added expenses?
A down payment is the upfront amount of money that buyers are able to put towards the purchase price of the home. The remaining percentage of the purchase price will be the principal of the loan. While most loan products only require a down payment of 3.5 to 5 percent of the purchase price, mortgage insurance is an additional fee to loans where the down payment is less than 20 percent. And keep in mind that the more money you are able to put down, the smaller the balance of the loan, and the less money you will spend in interest payments. Closing costs are additional fees that you should expect to pay at the time of closing. Buyers typically pay about 2 to 5 percent in closing costs.
Have you created a budget and know how much you can realistically afford?
A good rule-of-thumb when planning your budget is that no more than 1/3 of your income should go towards your home. This includes the principal of your loan as well interest, taxes and insurance. You may even feel like 1/3 of your income is too much to spend. It is important to decide on the amount that you feel comfortable paying, before you sign the closing papers.
If you find yourself with questions regarding your home buying situation, contact us and we’d be happy to help. You can also browse our Pinterest boards and follow us on Facebook to find more information about Perry Homes Southern Utah.