Buying a house is a huge financial decision—it’s likely the biggest you’ll ever make! With such a weighty and expensive decision comes a meticulous process that takes plenty of research and careful consideration before you fully commit. Being informed throughout the entire home buying operation is of the utmost importance as there are bound to be obstacles that require some extra calculating or some third-party advice.
Ultimately, it’s imperative that you dive into your house hunt with all of the knowledge you need to successfully close and turn your dream home into your very own humble abode. We’re here to give you the rundown on the four things you need to know before buying a home. Using this guide, you’ll be more prepared to make an informed decision that carves out your perfect, picturesque future!
Your Credit Score
It should come as no surprise that your credit score is one of the biggest determining elements in calculating what your mortgage stipulations will be. Before you even think about applying for a loan, be sure to run a credit score check to see what types of terms and mortgages you could qualify for. If your score is lower than you initially expected, you may consider taking some time to build it up before buying a home. Generally speaking, a credit score at or above 700 will be in the best shape for an agreeable mortgage.
Pro-tip: If you are a veteran, consider applying for a VA loan. These specialized $0-down mortgage loans are offered by the Department of Veteran Affairs and available to the regular military, veterans, reservists, and National Guard. Use this guide to better understand how to get a VA loan.
The first question you should ask yourself before beginning your house search is “how much house can I afford right now?”. As a general rule-of-thumb to help you gain the financial perspective you need, rather than inspecting your debt-to-income ratio, simply multiply your income by three. For example, a couple who makes a combined income of $120,000 should max out their home search at houses that cost $360,000.
Doing this will make qualifying for a loan within that range more feasible and make repayment a bit more manageable. It’s always safer to lean on the side of caution and take out a mortgage in an amount you’re totally comfortable with. Don’t make the mistake of buying with your eyes rather than your budget. That million-dollar mansion may be the perfect interior and exterior aesthetic, but your finances won’t look so pretty trying to afford a home out of your price range.
With a better understanding of your budget, you can fully begin your search for your dream home. You probably already have a working checklist of elements that would make your home perfect. Although you probably won’t be able to find a home that fulfills every exact item on your wish list, it’s a smart idea to keep your priorities at the forefront of your mind to ensure you’re covering your absolute must-haves. Use this checklist to hammer down your priorities and make sure to bring it along with you as you start to tour homes.
- Local school system
- Home systems (Fireplace, pool, central air, etc.)
- Exterior landscape
- Home size (# of rooms, # of floors, etc.)
Expected Additional Costs
Unbeknownst to most first-time homebuyers, there are a number of ancillary costs you’ll likely need to pay after closing on your home and squaring away the details of your mortgage. These oft-forgotten costs can accrue an intimidatingly large total that you’ll want to be prepared to pay shortly after closing on your home. These additional costs can include:
- Homeowners insurance: The average annual homeowner’s insurance premium totals to about $1,200, however, homeowners insurance rates will vary by state and by home.
- Closing costs: Closing costs can account for anywhere between 2%-5% of the entire cost of your home—this is a significant amount of money you should prepare for as well. Stash some money aside to cover these ancillary fees:
- Attorney’s fees
- Title insurance
- Appraisal fee
- Wire transfer fee
- Document prep fee
- Recording fees
- Credit report fee
Happy buying! With these four must-know considerations, you’ll be in better shape than ever to close on the house you and your bank account love!