Perhaps you’re buying your first home or perhaps you’re already a homeowner who’s looking to move, but it’s been a while since you went through the house buying process. If you’re the former, here are the essentials of home buying and if you’re the latter, here’s a refresher course.
1. Your Credit Score
Many home buyers enter the home buying process not knowing their credit standing. There are three major credit reporting bureaus: Equifax, Experian and TransUnion, all of whom use their own methods to determine scores. So that there are no surprises, a good rule of thumb for a home buyer (and for every American, really) is to check your credit score at least once a year. If there are issues with your credit report, such as inaccuracies or mitigating circumstances, you should be addressing them before you apply for your mortgage.
2. How Much House You Can Afford
It’s fine to aspire to something beyond your means when buying a home, but acting on it is a different story. The last thing you want to be is house poor. As we shall see below, the purchase price is only part of the financial commitment you’re making to your home. If you overreach at the outset, you are setting yourself up for a huge struggle to not only make your monthly payment, but to cover the ancillary costs of home ownership as well – and that will have a huge impact on your ability to afford the other niceties of life. It’s a harsh lesson that many learn after it’s too late.
3. Don't Obsess on the Interest Rate
Many home buyers become obsessed with the interest rate, ignoring all the other factors involved in the loan. Keep the bigger picture in mind and avoid sacrificing other benefits for the sake of the lowest interest rate you can get.
4. Focus on the Payment
The most important step to buying a house is asking this question of yourself: Do you have the means to handle that mortgage payment every month? A house you can’t really afford, in spite of a great interest rate, is still a house you can’t really afford.
5. Prepare for Taxes
Always factor in property taxes when budgeting your home purchase. Homeowners insurance and Home Owners Association fees, while usually not as significant as property taxes, push up your monthly bills even further. Be fully aware of these costs as well.
6. Taxes and Insurance Go Up Every Year
If you’re fortunate, the value of your house will rise steadily as the years go by. Ideally, it will outstrip inflation and gain real value. While there are few better feelings than knowing your house has gone up in value 20 or 25 percent since you purchased it a few years back, there is a dark lining to that silver cloud: your taxes and homeowners insurance are going to go up accordingly. Property taxes rarely go down (and if they do, it’s probably even worse news than if they go up because it means your area is sliding in value), so know that going in. In a booming market, you could see your annual property tax bill growing significantly each year.
7. Home Age: Newer vs. Older
When it comes to buying a new or almost-new home versus a much older one, the important rule of thumb here is this: Know what you want and plan accordingly. There are going to be savings and costs for both, some of which are obvious and some of which are not. For instance, with an older home you’ll need to consider the age of the roof, paint, fencing and appliances. While those won’t be a factor with a newer home, you might find yourself in a newly developed area where you are bound to incur additional expenses to take care of the infrastructure it requires.
8. Homestead Your Home
One of your first acts after purchasing your house is for you to apply for a homestead with the county so that they know you are living in the home and not renting it out. Check to see what exemptions apply. Remember that the county is not going to tell you about any exemptions, you are going to have to discover them for yourself. Doing so could save you a considerable amount of money.
9. Factor In Your Commuting Cost
Perhaps you’ve found the perfect home; but have you considered how much it’s going to cost you to get to work? The cost of gas is just one factor. Rolling up miles on your vehicles costs in the long run, too. Monthly passes for mass transportation and toll roads don’t come cheaply, either. Be sure to factor in what it’s going to cost you to get to the job you need to pay for this new house, in terms of both commute time and money.
10.Know the Quality of Your Schools
If you’re a parent or thinking of becoming one, you’re going to want great schools for your children. Do your homework on the schools in the area in which you’re looking to buy. A superior school system might just tip the balance in favor of one home over another when you take your children’s education into consideration. Click here to search for schools in your district.
Keep in mind, however, that superior school systems also sometimes come with higher tax rates. Make sure you know what it's going to cost you to live where education is best. Click here for School District Tax Rates
Now It's Time to Buy That Home!
There are many steps and factors to consider before buying, but it shouldn’t dissuade you from getting prequalified for your mortgage. These factors are not presented to scare you off, but rather to get you prepared for what lies ahead. After all, knowing the ins and outs of getting a home loan beforehand is much preferable to after the fact.