Buying a new home is understandably a major step to take, and it is not a step to take lightly. Your new home purchase can affect everything from your budget and financial future to your lifestyle, your future plans, and more. It is wise to review a few critical factors before you move forward with your plans to buy a home. By understanding and analyzing these points carefully, you may feel more comfortable with your home buying plans.
Review Your Debt Ratio
If you plan to apply for a home mortgage to pay for your new home purchase, you should review your debt ratio carefully. When you buy a home with a loan, your lender will analyze your debt ratio to qualify you for the loan amount you desire to buy a home. The debt ratio includes all of your monthly debts, such as your minimum credit card payments, the new monthly mortgage payment, your car loan payments, student loan payments and other similar expenses. It does not take into account your utilities, child care expenses, food, gas for your car, insurance and more. Divide your monthly debts by your gross monthly income to determine your debt ratio. Ideally, this figure should be below 43 percent to qualify for a loan to buy a home.
However, this 43 percent figure does not actually tell you if your new mortgage payment will be affordable for your budget. Therefore, you should analyze your budget on your own to determine if you can afford to buy a home without negatively affecting your current lifestyle.
Understand the Costs of Buying a Home
You also need to ensure that you have enough cash reserves before you buy a home. There are some home loans that require a very low down payment. However, it is better to place at least five to ten percent down on a home to have some built-in equity established. You should also estimate the closing costs before you buy a home. Closing costs can be estimated at three to five percent of the sales price or more. Your lender may also want you to prove that you have at least two to three months of the mortgage payment in your bank account after the down payment and closing costs have been accounted for. You should not plan to entirely drain your bank account of funds when you buy a home.
Examine Home Maintenance Expenses
Some buyers purchase a fixer-upper. These are homes that require a significant amount of work right from the start, and you may need to pay several thousand dollars or more to simply make the home livable or to improve it to a reasonable or good condition. In addition, all homes have maintenance expenses that you need to budget and plan for. Small expenses, such as light bulbs and air filters, can add up. However, broken appliances, plumbing issues roof damage and more can be more expensive, and these issues often develop out of the blue. You should be aware of the current condition of a home before you buy it. You also need to know the age of structural components, such as the roof, before you buy a house. If you do not have the funds available to properly maintain a home, you may consider delaying your purchase until you can afford to care for it.
Think About the Future
Some people buy a house with the expectation that they will sell it within a year or two. For example, you may be aware that you may be transferred to a new location within your company soon. Perhaps you plan to start a family and will need more space in a few years. It is possible to sell your home at any time. However, there are costs associated with selling a home, such as real estate agent commissions, make-ready expenses and more. You may not have sufficient equity in the home if you sell it soon after you purchase it, and this means that you may not be able to sell it as you had planned. In addition, it can sometimes take several months or longer to sell a home. Therefore, you should plan to purchase a home that has a suitable size for your needs for the next few years. If you plan to move within a year or two, renting may be a better option to consider than buying a new home.
Estimate the Impact on Your Schedule
Before you buy a home, you also should think about how the real estate purchase will affect your weekly schedule. For example, home ownership generally requires at least some time and effort to properly maintain the property. You may be accustomed to calling your landlord when something breaks in the home, and the landlord may currently handle exterior property maintenance and all landscaping work. As a homeowner, however, you will need to schedule repair work for the home and make yourself available at a moment’s notice to be at home when the repair team arrives. You also will need to handle exterior maintenance work on the home, or you will need to budget properly so that a professional can be contracted to do the work for you. A new home may also be larger than your current home, and it may require more time to clean each week.
As you can see, there are many factors to consider before you buy a home in Long Beach. At Evergreen Properties and Investments, our goal is to help each of our valued clients make a great real estate decision. If you are not certain if home buying is right for you, a smart idea is to consult with our team. Through a personal consultation, you can learn more about the impact of home ownership on your budget and your life so that you can determine if now is the right time for you to buy a home.
Author: Dan Barcelon