For many Americans, buying a home is a rite of passage. It’s a symbol of independence and financial stability. But there’s a lot to think about before you venture into homeownership.
Cultural symbolism aside, there are practical aspects to consider. For example, a homeowner invests the money she would otherwise spend on rent into a property she can later sell or leave to her heirs. A house also usually offers more privacy than an apartment or condo.
However, buying a home is a major financial decision. For most people, it’s the single largest purchase they ever make. If you’re ready to take that next step, it’s important to consider a few things.
Purchasing a home isn’t just about the listing price. Here are a few financial things you should work out before you sign on the dotted line:
- Maximum Monthly Payment: Most financial experts advise that your maximum monthly payment on housing should not exceed 25-28 percent of your total monthly income. So, if you bring home $5,000 a month, you should aim for a house payment of $1,250-$1,400 per month. You can use the mortgage calculator from Bankrate to check out specific numbers. Depending on the interest rate, using the example figures above, you could likely afford a home between $250,000-$276,000.
- Private Mortgage Insurance: If you don’t have at least a 20 percent for a down payment, your lender requires you to have private mortgage insurance (PMI). Most lenders add the PMI payment amount into your mortgage payment. Make sure you know how much this is so that you can include it in your budget.
- Maintenance: When you’re living in a rental, your maintenance responsibilities and costs are minimal. Once you purchase a home, you’re fully responsible for leaky roofs, cracked pipes, broken water heaters, yard work, and other repairs. If you add a cushion into your monthly budget, it’ll help you save for these unexpected expenses.
- Utilities: Depending on where you live, you might or might not already be responsible for all of your utilities. Property owners pay for electricity, gas, water, sewer, garbage removal, and property taxes. Some neighborhoods also charge recycling fees.
- Homeowner’s Association Fees (HOA): Neighborhoods with HOAs charge fees which can range anywhere from $25 to several-hundred-dollars per month. These fees typically cover the cost of amenities in the neighborhood. Sellers are required to disclose if a home is part of an HOA. However, they might not be required to disclose monthly fees or rules, as HOA bylaws are available via public records.
The Pragmatic Things
If you’re comfortable with the financial aspect of purchasing a home, the next thing to consider is all the pragmatic things you need to know, including:
Location: Home prices can vary based on location. Narrowing down the neighborhood where you want to live can make finding your dream home much easier. If a specific neighborhood isn’t super important, shifting your home search to include several could save you thousands of dollars.
The size of the property: How many bedrooms do you need? Might you need more in the future? Can you live with one bathroom? Do you want a yard? A big yard might seem appealing when you’re looking at a property, but you’ll need to maintain that lawn. Make sure you think about actually living in the house and not just the aesthetics.
The crime rate: In most states, real estate agents are not legally obligated to disclose crime rates for certain areas (and they can’t post them on their websites, either). If you want to know how safe a neighborhood is or what the school rankings are, you’ll need to research it yourself. Some helpful websites include Great Schools and City Data. You can also check the local police department website for crime reports.
The age of the property: Older homes are more likely to need major repairs, especially if they haven’t been updated recently. If you’ve seen any home renovation show, you know many problems occur in older properties. Here are some things to look for and be aware of:
- Old wiring
- Ungrounded outlets
- Leaky roof or windows
- Poor insulation
- Foundation issues
- Homes built before 1978 should be tested for lead paint.
- Homes built before 1986 might have lead pipes.
- There could be asbestos in homes built pre-1980.
Older homes have character, and many of them were built with artistry you won’t find in newer models. Just be aware, if you invest in an older home, you might be spending more money on updates and repairs in the future.
Renovations: If a property owner renovated a home, make sure they provide documentation that proves they received the proper permits. If you purchase a home with unpermitted additions or renovations, you’re held responsible for the higher taxes, or any other fees necessary to bring the renovations up to code.
Will your furniture fit? There’s nothing more frustrating than moving into your new home only to find the hutch that’s been passed down for generations doesn’t fit…anywhere. Either set aside a budget for new furniture or be more strategic during your house hunt to avoid this headache.
How long do you plan to live in your new home? If this is your forever-home, then buy for the future, not just the present. Look at everything from the perspective of what your family could look like ten years from now. Thinking about the future can prevent your dream home from turning into a nightmare later on. Here are some other things to consider for the long-term:
- Zoning and development: This might be something you’re unable to control, but you should look into it. Are there any major developments planned in the area? Will traffic on your road increase due to a major project planned by the city? Are you willing to deal with construction or an increase in traffic?
- Potential for investment: Does this property have the potential to increase in value? If you land a nice home at a lower price, you can increase the equity quickly if the market shifts. Likewise, if you overpay on a property, you could lose money if the market shifts in the opposite direction.
Purchasing a home is a major—and expensive—decision. So, take your time, do some research, and narrow down what you want, so you don’t regret your purchase a few years down the line.