Purchasing a home is a very rewarding experience and one of the pinnacles of living the American Dream. There are some important steps to take before diving head first into home buying. Whether it’s your first time or not, lessening the chance of complications is key!
Save Enough Cash for a Down Payment
Okay, so this one is obvious! However, many people have accumulated debt and other obligations that become more important than saving for a house. Typically, lenders require a down payment of 20%. Having more than that is always a plus!
Understand the Costs of Homeownership
A monthly housing payment is divided into four parts: principal, interest, taxes and insurance. Principal and interest together totals your monthly mortgage payment. Principal pays down your loan balance, and interest pays the fee for borrowing the money. Taxes refer to the property taxes that are governed by the county you live in. On average, property taxes are 1.2% of your home’s value. Homeowner insurance is required once you have a mortgage and you choose the company. Lenders require that your insurance cover the cost of rebuilding your home in case of a natural disaster or accident. Insurance typically costs up to $1,200 per year for a single family home. Lastly, in the case of condominiums and houses within subdivisions, there is a homeowner’s association cost, which covers amenities such as landscaping and exterior repairs.
Location, Location, Location!
Besides deciding on the type of home you want to buy, do your research to find the perfect neighborhood to root yourself. When renting, typically a lease is only a yearlong. Buying a home means you will be living in the same place for years! Finding the right location for you, your family, and your career is pivotal. Suburban areas are great for families because they come with more lot space. However, if you are a young professional or a young married couple, an urban condo may suit you better.
Identify your Budget
It is possible to get a mortgage for less than 20% down! However, if your down payment is below that margin, you’ll be required to pay mortgage insurance, which is another expense and it is not tax deductible. For example, a home worth $300,000 with a 3 percent down payment, on a 30-year fixed mortgage at 4 percent will have a mortgage at $1,995. Total housing cost will add up to about $1,614 after tax deductions and it would only require a down payment of $9,000.
