Buying a home is a huge decision. Whether it is your first home or an upgrade, odds are any time you buy a home it will be the biggest financial transaction you have ever entered into in your life. To make such a big decision, it is important to understand what you are getting into.
The first thing to understand when you are buying a home is your budget. Whether you are going to buy a condo, townhouse, duplex, or single family home, expect a lot of expenses around the purchase, transaction costs, and ongoing maintenance once you move in.
A real estate agent or mortgage broker can help you understand the transaction costs, which are often a rough percent of the home purchase price and can fluctuate based on the state, city, and county regulations.
If you are looking for general guidance, here is a basic calculator to show how much you can afford to spend on a home and what your monthly costs may be when you close.
Even if you can afford a home, ever since the financial crisis in 2008, lenders have been much more strict on who they lend money to. If you want a home loan, you need to have great credit and a track record of on-time payments and responsible debt management.
The basic components that make up your credit are:
- Payment history
- Current outstanding debt
- Length of credit history
- New credit
- Credit mix
If you really want to understand it better, here is a great guide to what your credit score means and what you can do to improve it.
Home Maintenance Costs
As a renter, any normal wear and tear or maintenance costs are the responsibility of your landlord to fix. Whether there is a major clogged drain, a broken refrigerator, or virtually anything else that can go wrong with the place, your landlord will cover the cost of any necessary repairs.
When you own a home, that cost falls on you. Broken hot water heater? $110 for a repair. Not so bad. Dead furnace or air-conditioner? That might set you back $4,000. And almost anything can go wrong in a home from broken appliances to flooded basements.
If you are going to buy a home, be sure to understand what may go wrong during the inspection and what it may cost to fix it. You should also set aside an emergency fund of $3-5k to prepare for unexpected maintenance costs.
Home Location and Value
One of the most important things to understand is what the home is worth, which comes from a combination of the home itself and the location.
Whether you are buying your first home or your fifth, be sure to do the research before you make an offer. You don’t want to be stuck with a home you hate or a big money pit.
What do you think are the biggest questions to ask when you are buying a home? Let us know in the comments.