Many Americans have the dream of someday being homeowners. If you’re one of them, and you think you just might be ready to make the leap to homeownership, think again: there are some things you’ll need to consider first.
Owning your own home is a wonderful thing, but only if you’re financially prepared for it. To help you with that, in this article we’ll discuss what you can expect from the home buying process, as well as how you’ll need to be prepared financially.
How to Know if Homeownership is a Good Choice for You
Even if your finances are in good order for home buying, you’ve got to think carefully about whether being a homeowner is really ideal for you. It’s not just about finances, it’s about lifestyle. As just one example, 33% of people who rent move every year. If you’re in the habit of getting restless and moving to different places often, owning a home is going to tie you down. It may be fun and exciting at first, but eventually, the novelty will likely wear off, leaving you with a big house you’re stuck paying for.
Besides that, being a homeowner will mean that many tasks that may have been handled by your landlord before are now your responsibility. Many apartments and even houses for rent have yard work and home maintenance managed by the owner, or else by a property management agency. Make sure being a homeowner is what you really, really want for yourself before making that kind of commitment.
Buying a House: The Steps Involved
Buying a home might not end up being a one-and-done deal, especially if you have to sell your current house first. After all, 50% of all homes listed for sale in the DC Metro market didn’t sell the first time. Home selling, and home buying, sometimes takes a few tries to get right.
Assuming selling your current home isn’t an issue and you’ve decided you’ve got the financial foundation necessary, the process of buying a home starts with checking your credit report and score. Your credit report will be used by lenders to decide whether or not to lend you money, so if there are any errors on your report, you will need to discover what those are and have them fixed beforehand.
Your credit score will be a number between 350 and 850. The higher your credit score number, the better your credit, which means your interest rate will be lower. If your credit score isn’t in the greatest shape now, you may choose to work on your finances for a few months and see if you can get it up to a more impressive number. Disputing errors on your credit report is one way to do that. Other ways are to ensure you’re paying all your bills on time, pay down existing debts, and increase your credit limit with different types of credit. Just make sure you don’t apply for a loan or credit card within a few months of getting a bank loan since this can cause a temporary dip in your score.
After you’ve checked over your credit rating, you’ll want to decide for sure how much house you can afford. You may have determined that you can afford a new home already, but be specific as to how much money you’re able (and willing) to spend on housing.
Before you talk to too many people about buying a home, it’s a good idea to get pre-approved for a home loan by a bank. Find a good lender in your area with positive feedback from other home buyers and make an appointment to have them check over your financial situation. At the end of the process, the lender will give you a document stating how much money they would be willing to lend you based on your income and your credit score and history. You don’t have to rely on the same lender to actually get your home loan, but being pre-approved will give sellers confidence in your ability to actually get a loan big enough to buy their home.
Once you’re armed with a full picture of your financial condition, it’s time to get busy. Find a real estate agent you’re comfortable working with and talk with them about what you need and want in a new home. Your agent will take your finances and borrowing ability into account in deciding what kind of homes you should look at, based on your interests.
Beyond the Mortgage: Expenses Involved in Home Buying
Perhaps more frustrating than any other factor on this list is that buying a home involves a lot more money than your mortgage payment. The mortgage payment itself might be cheaper than rent for most people, but when you place taxes, fees, and interest payments on top of that, it starts to look less like a great deal.
When you consider homeownership as an option, you must take into consideration all the expenses associated with this. 85% of homeowners have home insurance of some kind. There will be interest payments on your mortgage. You might need flood insurance, and there will definitely be property taxes. Depending on your community, you might have to pay condo or HOA fees. And as if that wasn’t enough already, there will always be the cost of maintenance and repairs for your house and lawn.
And those are just the recurring payments. One-time expenses include mortgage origination fees, closing costs, and any legal fees. Besides that, if you’re buying a home for the first time, you’ll probably want to buy furniture and equipment (such as a lawnmower) to use once you move in.
For people who rent, some or all of the above expenses will probably be included in the monthly rent payment itself. Even if utilities are extra, you probably don’t have to think about taxes, or even do your own yard work. It’s possible that renting would actually cost you less — even over the long term.
By no means is the purpose of this article to discourage people from becoming homeowners if they want that. If you’re in a financial position to do it, then go for it. It’s an excellent goal that many people have, and you should be proud if you have the opportunity to own your own home. But it’s critically important that you know what you’re getting into, before you get into it. Find out what the expenses will be ahead of time, so you can enjoy your new home free of financial concerns once you get it.