Buying your first home can be very exciting—but it can also be very intimidating. Owning a home involves much more than renting an apartment does, meaning there are many often overlooked factors you’ll want to be sure to think about.
Before getting too ahead of yourself, take a deep breath, and be sure to take the time to ask yourself these very important questions:
1. How Much House Can I Afford?
When comparing different houses online, it can be very tempting to spend more than you can afford. Just because you can qualify for a particular mortgage doesn’t necessarily mean that you can actually afford it. As a rule of thumb, your purchase budget should be no more than four times your current annual household income. So, if your household is earning $100,000 per year, your max budget should probably be around $400,000. If you have significant amounts of debt, then you might want to budget lower.
2. Is Now The Right Time to Buy?
In addition to looking at the general state of the housing market, you should also look at your personal finances. What is your current credit score? What is your current income? What interest rate do you currently qualify for—and is it possible to change any of these factors within the next few months?
3. What Costs Might I Be Overlooking
People tend to focus on the sticker price of the home, which is certainly quite important. However, there are so many other costs of home ownership that will also need to be considered. Property insurance and mortgage insurance, for example, are two “baked in” costs that will need to be paid on a monthly basis. Usually, the total cost of home ownership is much more than people anticipate, which is why it is wise to leave some room in your budget.
4. How Long Do I Plan on Living Here?
If you plan on living in your home for only a year or two, there might be some variables (such as the school district) that will not really matter. However, if you do plan on living in the home for a very long time, you’ll want to give it a closer look. How are the schools? What future developments are likely to take place? What changes would you like to make to your home ten years down the road? Each of these questions are worth asking prior to making a purchase.
5. What Is the Current Tax Situation?
Property taxes are one component of home ownership that, outside of voting, can be difficult to control. Homes with high property taxes tend to be worth more but these taxes will certainly place an additional strain on your budget. Usually, taxes are bundled directly into your monthly mortgage payment.
6. What Should I Expect to Pay in Utilities?
Utilities—including water, electricity, gas, internet, and more—are an expense that many new homeowners tend to overlook. The average American homeowner spends about $4,000 per year on utilities, or about $350 per month. However, if your home is large or has special features (such as a pool), your utility bill can be much higher. Be sure to allow for some wiggle room in your budget, especially during the winter and summer.
7. How Has the Local Housing Market Been Performing?
Ups and Downs
The housing market, like many markets, is generally moving in a positive direction but will still experience ups and downs over time. An investment in a house will represent a huge portion of your wealth. The best homes are the ones that are currently experiencing an upward price swing but have not yet “maxed out.”
8. Can I Currently Afford To Do Any Renovations?
Even in your dream home, there will likely be several things you’ll want to change. Some changes, such as adding a pool, can be long-term goals that you’ll address later. Others, such as structural features and utilities, might need to be addressed immediately. Ask yourself, can you afford to make these changes? If you can’t, consider trying to negotiate these improvements with the current sellers.
9. What Are the Houses Nearby Like?
There are many variables that can affect the value of your home, including changes to the values of the homes around. If the home you are considering is currently the best home on the block—by a wide margin—it might be a little while before your property begins to really appreciate. When making a final decision, be sure to account for the entire neighborhood.
10. What Are My Goals as a Homeowner?
People buy homes for different reasons. Some want to live in a better school district for their kids. Others want to build as much equity as they possibly can. And others, of course, are simply looking for a place they’d like to live. Many people will be pursuing multiple goals at once—whatever the case might be, take a few minutes to write down your personal goals as a homeowner. This will make the entire homebuying process considerably easier.
Once you’ve take the time to answer these crucial questions for new homebuyers, you will be one step closer to finding the home that’s right for you.
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