This is a guest blog post by Emma Bailey, Credit.com.
Purchasing a home is undoubtedly one of the biggest financial decisions you’ll ever make. You can pave the road ahead by making sure to honestly evaluate all of the costs and responsibilities of homeownership before you buy.
Think you're ready to buy a home? Before taking the plunge, ask yourself the following questions:
1. Do You Have Solid Credit?
Your credit score is one of the key factors that lenders look at when offering interest rates on mortgage loans. While a percentage point or two might not seem like much, remember that the interest will compound over time. You could find yourself paying thousands of dollars extra over the life of your loan if your credit is less than stellar.
You can boost your credit score by reducing your level of debt and making sure that your current payments and obligations are up to date. Obtain a copy of your credit reports so that you can see if there's anything troubling or inaccurate in them. Even if you've been diligent about paying your bills when they are due, errors have been known to happen and may work to your disadvantage. Reviewing your credit reports ahead of time will give you the opportunity to correct any mistakes before you apply for a home loan. Knowing your credit score will also give you a good idea of the interest rate you're likely to qualify for.
2. In What Neighborhood Do You Intend to Buy?
The available properties in your area are probably spread out among several different neighborhoods. Two almost identical homes located in separate parts of town could have wildly different asking prices. The details that go into the costs of buying in a particular location are numerous and may include:
- Proximity to urban centers
- Crime rates
- Quality of schools
- Nearby recreational or entertainment facilities
Always look around before committing in earnest. If you don't really care about one or more of these features, it's possible that there's an equally attractive home selling for much less just a few miles away.
3. Have You Considered All the Costs?
You'll spend more money than just your down payment and monthly mortgage payments if you wish to buy real estate. Closing costs, homeowners insurance, local property taxes, utility bills, furniture and more add onto the sticker price of any new home. Carefully calculate what your true costs will be in advance so that you aren't caught by surprise.
Many experts recommend keeping several months' expenses in an emergency fund. This will enable you to deal with unanticipated repairs or temporary reductions in income without having to alter your lifestyle or scramble to scrape up the needed cash.
4. Would Renting Be a Better Option?
Although the benefits of owning a house are advertised regularly, the downsides involved aren't always as obvious. As mentioned above, when you buy a home, you'll be responsible for its upkeep, property taxes and other expenses, and you won't be able to go to a landlord to get your issues resolved. Selling a home can take some time, so you may be stuck for awhile if the home turns out to not be what you thought it would be.
An additional drawback is the fact that real estate prices in some markets aren't appreciating as quickly as they did decades ago. If you end up having to sell right away, you might not be able to recoup the entire amount you invested.
5. Will You Earn a Stable Income Going Forward?
An inability to pay your mortgage could damage your credit and even lead to foreclosure. This is why it's crucial to make sure your income stream is steady before signing any purchase agreement.
Thorough preparation and realistic planning are the cornerstones of becoming a happy and successful homeowner. Buying a home is a major decision with significant financial ramifications. Doing your homework first will increase your peace of mind during the home buying process and as you transition to your new life as a homeowner.
On the House blog posts are meant to provide general information on various housing-related issues, research and programs. We are not liable for any errors or inaccuracies in the information provided by blog sources. Furthermore, this blog is not legal advice and should not be used as a substitute for legal advice from a licensed professional attorney.