What monthly payment can you comfortably afford?
Buying a house often means changes in your monthly expenses. You want to make sure that you can cover your mortgage payment, while still maintaining a lifestyle that you are happy with -- whether that means going to the movies, traveling, or socializing with friends. You don’t want to be strapped for cash. Also, don’t’ forget about the other expenses including garbage pick-up, utilities, lawn care, and heating.
It’s not just the purchase price of a house that impacts affordability. With larger homes, there are usually higher expenses associated with utilities, maintenance and even property and school taxes. Be sure to take this into consideration, because the increased expenses can add up quickly.
Your Mortgage Loan Officer can work with you to help determine how much fits in your budget. Also, consider future plans (such as moving from a two income to one income household) that may impact the affordability of your payment.
How much do you have for a down payment?
This is an important question. With a smaller down payment, you may have to pay Private Mortgage Insurance (PMI) - an added expense to consider. You also need to look at whether you will have funds after purchasing the home. When owning a home, it is a good idea to plan ahead and have financial backup should the unexpected occur.
The actual down payment amount can vary depending on what program and loan product best suits your needs. Some first-time home buyer programs might require as little as 3% down (or even 0% down), but you should plan on having somewhere between 5% and 20% of the purchase price saved.
TIP – It’s always good to talk to a mortgage expert to help you determine what programs/loans are available before you apply.
How much money do you need for closing costs?
Closing costs are the combination of various services and fees, which often include realtor commissions, taxes, title insurance, and other requirements necessary to process and finalize your mortgage. These costs can vary greatly from state to state, but are often between 3% and 5% of the purchase price of a home.
How long do you plan on staying in the house (or with the loan)?
This may determine what type of loan you should consider. For example, fixed rate versus adjustable rate, or whether you should pay points to “buy down” the interest rate.
Is paying off the mortgage early important to you?
Everyone is in a different place in their life when they take out a new mortgage loan. Whether you plan to retire in five years or twenty, or you’ll have children down the road, it is important to consider how a mortgage payment factors into these plans.
Is your income likely to remain stable, increase, or decrease over the life of the loan?
This is a significant point to consider. Once you take on a mortgage payment you are committed to paying the loan on time. Income that is expected to change in the future may impact the affordability of your payment.
Are there any major renovations or improvements needed for the home you want to purchase?
It’s one thing to see a house and fall in love with its “potential.” It is a completely different discussion to determine what it would take to make the house safe, functional, and up to local building codes - let alone your dream home. If you find a home you like and are considering an offer, or have made an offer contingent on an inspection, ask your friends, family or even your Realtor to recommend a reputable home inspector. The inspector is likely to discover the need for a new roof, furnace, or other large repair in the near future. Leverage the findings of your home inspector when possible. Often, you can use repair needs as part of your negotiation in the purchase of your home.
What is the neighborhood like?
Take time to check out the community where the home you want to purchase is located. Look for things that may be of particular interest to you, like parks, shopping, restaurants, and other destinations. Some may be deal breakers, or even better, a much appreciated perk. There is no harm in doing a little investigating on your own – consider driving through the neighborhood at different times (e.g. after dinner, weekends) to get a feel of the neighbors/neighborhood.
What are the neighbors like?
Something that may sound so obvious can often go overlooked. Let’s assume you found a house you love… that’s great! You may want to find out what you neighbors are like, considering you have purchased a home you intend on living in for the foreseeable future. Don’t be afraid to ask the sellers questions. Are the neighbors quiet or active? Do they like their privacy? This may, or may not, be an important consideration for you when buying a home.
How is the school district?
This is important, especially if you have (or plan to have) children. You can do plenty of research online about school districts, including what types of resources they provide to you/the community, how close the school(s) are to your home, and how small/large the school(s) are. Often, communities with good school districts are in higher demand, which may also mean home values/prices and school taxes are higher.
If you are not in love with the school district, see if there are any private school options nearby. It may be an additional expense to go the private school route, but that can be part of your overall financial consideration when buying the home.
How long has the house been on the market?
Not always an indicator, but sometimes a house being on the market for a long time can mean the seller is not motivated to move…or it could make you question why it’s not sold. Looking at listings on home sale sites only tell part of the story, so we recommend you ask your Realtor lots of questions. Good Realtors tend to have their pulse on the housing market in the communities you are looking to buy. They may provide insight and guidance about a property’s history that can help you make the decision to either make an offer on the house or keep looking.
Are appliances included in the sale?
Sometimes sellers leave the washer and dryer, sometimes they don’t. It is best to always ask and to clarify exactly which appliances are included as-is. The last thing you want to do is open the door to a new home and notice you do not have thousands of dollars in much-needed appliances! Also, check to see how old appliances are, to determine if they may need to be replaced in the near future. Again, there is no harm in asking, and you may even be able to negotiate them into the home sale.
If you have questions and would like to speak with a mortgage professional, please complete the form below.