Buying a house is oftentimes seen as a rite of passage. It can be a symbol of adulthood and financial security. But that doesn’t mean you should jump into the home buying process as soon as you can.
There are a lot of responsibilities and costs associated with owning a home. You first need to make sure buying a house makes sense for your situation. Here are a few things to know before buying a house and how to determine whether it’s the right move for you at this time.
Should I buy a house?
There are a couple of important things to know before buying a house. For starters, it may make sense to buy a home if you know you’re planning to settle in one area for at least a couple of years and you have job security. On the other hand, future plans to move and lots of personal debt are warning signs to hold off for the time being.
Homeowners have to pay for the home’s maintenance, insurance and are responsible if appliances break down. These costs can quickly add up. Even if you can afford a mortgage, it doesn’t mean buying a home won’t stretch your budget.
7 important things to know about buying a house
Buying a house can be a great financial move, but it must be made carefully. Jumping into the home buying process before you’re ready could leave you with additional responsibilities and costs you’re not ready for.
Here are the top things to know about buying a house.
1. Don’t go house broke
The term house broke is when a homeowner ends up spending a large portion of their income on mortgage payments, home maintenance, property taxes, and other costs associated with owning and buying a house.
People who don’t realize the real cost of homeownership are at the greatest risk of going housebroke. A rule of thumb is that if you can just afford your mortgage payment, it’s probably not financially viable to buy a house. You want to have extra wiggle room on top of your mortgage payment to cover other expenses like closing costs, maintenance, property taxes, insurance, utilities, and repairs.
2. Look at a home purchase as an investment
Owning a house is a type of investment. In fact, it’ll likely be one of the largest purchases in your life. It’s also a major commitment. You should approach buying a house as a long-term investment, so don’t expect to see results right off the bat. It can take years before your home appreciates in value and you earn a return.
3. Your credit score matters
Having a good credit score will help you qualify for the best mortgage rates. Strong credit shows you’re a responsible buyer with a healthy credit history making you a more attractive borrower. If your credit score is currently below 700, you may want to hold off on applying for a mortgage until your score improves.
4. Consider all costs associated with buying a home
Having enough money for a down payment and being able to meet your mortgage payments is only the first step towards being able to afford a home. You’ll also need to factor in closing costs, which can range from about 3% to 6% of the total price of the home.
Plus, homeowners have to pay for insurance (especially if you have less than 20% in down payment), inspections, and even possible renovations and upgrades. Keep in mind you’ll end up paying considerably more than just the final price of your home.
Owning a house means you’re financially responsible for anything that breaks and all required repairs. If appliances need to be replaced, if your roof starts leaking, or if your basement floods, you’ll have to foot the bill. This also means you’ll have to pay for homeowners insurance.
6. Type of loan matters
There are multiple different types of home loans and mortgages. Certain types of loans have stipulations that forbid you from selling the home within a certain period of time.
Other mortgages have adjustable rates that change over time, which means your payments can change and become higher. Make sure to read the fine print before signing any documents.
7. Make sure it’s the right choice for you
It’s easy to feel pressured by your friends or family about buying a house. Just keep in mind that there’s no set age for becoming a first-time homebuyer. What matters is that you make the right decision for your lifestyle and finances.
Sometimes, flexibility and mobility might be more important if you are in the beginning stages of a career. Your family plans may also change. If you do decide to buy a home, make sure you’re prepared for stability.
Helping you save for the future
Maybe you’re looking to grow your nest egg to afford a down payment. Or maybe you’re already a first-time homebuyer, and you’re now looking to diversify your investments outside of the real estate. Whatever your plan is, make sure a large purchase like buying a home is the right one for you!
Which are prepaid costs when buying a home?
Prepaid costs when buying a home include an escrow deposit, homeowners insurance premium, property taxes, and mortgage interest.
How much money should I have in the bank before buying a house?
This depends on the price of the house you are looking to buy. Most often, you’ll need at least 20% of the final purchase price for the down payment. Plus, factor in another 3% to 6% for closing costs and extra funds for renovations or repairs.
What debt should I pay off first when buying a house?
Ideally, you want to focus on paying off high interest rate debt first. These are typically credit cards or other expense loans.