Once you’ve decided that it’s time to buy a home, it can be hard to think of anything else. You may be anxious to find your dream home and move in as soon as possible. Purchasing a home is a lengthy process, though, and it’s not one you should rush into.
Whether you’re in the market for your first home or planning to upsize from your current house, there are a number of personal and financial factors to consider before you put in an offer. Here are eight tips for potential home buyers:
1. Know when you’re ready.
There isn’t a specific age or milestone in life where you automatically become ready to be a homeowner. Buying a home is a personal decision, and you should only do it when you know that you’re ready. Don’t let anyone else pressure you into purchasing a home if you know it’s not the right decision.
First, you should consider your finances. The Federal Housing Administration uses a debt-to-income ratio of 43 percent or less as a guideline for mortgage approval. To calculate your debt-to-income ratio, add up your monthly debt payments including the potential mortgage and related expenses. Then, divide the total by your monthly gross income.
You also should have something saved for the down payment. A 20 percent down payment lets you avoid paying for private mortgage insurance, but you can get approved with a smaller down payment, too. Your down payment shouldn’t entirely deplete your bank account, though.
In addition to being financially prepared, you also should be emotionally, mentally, and personally ready to become a homeowner. Don’t buy a house because others expect you to or because you feel like you have to keep up with your peers. Homeownership should be an exciting milestone that fits within your lifestyle, not an obligation.
2. Choose your realtor wisely.
Don’t try to save money by buying a home without a realtor’s help. Even if you’ve bought a house before and are familiar with the process, a realtor has expertise that will save you money, time, and stress. This is not a plug for ourselves here – you really do get a lot of help as a buyer.
Talk with a few realtors before you choose one. Your realtor should listen to you and understand your needs, wants, and priorities for your home. You should feel like they have your best interests at heart. If you have a gut feeling about the trustworthiness of a realtor, listen to it.
3. Think ahead five years.
As exciting as it is to buy a home, the process is also time-consuming and stressful. You don’t want to buy a home now that you’ll be selling in just a few years. Imagine where you’ll be personally and professionally five years from now. Will this house fit that lifestyle?
The general rule is to buy a home that you plan to live in for at least five years. If you plan on moving, getting married, starting a family, or going through any other major life events in the near future, don’t buy a house that won’t accommodate those changes.
This doesn’t mean you should buy more than you can afford right now, though. Your home should meet the needs of both your current and future self. If you don’t think this is possible, it may be best to wait.
4. Know what to look for.
The home inspection is a critical part of the buying process. The inspector will look at all the details, but you should know the most important elements.
A roof can last 20 years or longer depending on the material, but replacing it costs thousands of dollars. Before you buy the home, ask how old the roof is. You should also check out the home’s foundation. If there are cracks around the foundation or uneven floors, you may be in for some costly repairs.
Look for signs of water damage, too. Musty odors or mold around the pipes are signs of an old or leaking plumbing system. Water damage could also be a sign that the house flooded, which means there’s a risk of it flooding again.
5. Factor repairs into your budget.
You may find a dream home that you don’t want to make any changes to, but most people have at least one renovation in mind when they buy a house. Think about the financial impact of any repairs or renovations you want or need for the home. Consider the cost of parts and labor, and think about how much time the repairs will take.
This may be worth it for a home you absolutely love, but make sure you’re not looking at the house through rose-colored glasses. If the repairs are going to cost you thousands of dollars, the home may not be right for you.
6. Consider all the other costs. (They can add up)
Your monthly payments include more than the mortgage itself. You should consider the cost of home insurance, mortgage insurance, property taxes, homeowner association fees, and any other monthly expenses. Altogether, the costs may come close to the mortgage payment itself.
Maintenance costs, utility bills, appliance replacements, and other expenses can add up, too. If you only factor in the mortgage payments to your budget, you may end up in trouble.
7. Don’t buy more than you can afford.
If a house is out of your price range, do not go to see it. You set your upper price limit for a reason, so you should stick to that boundary. Unfortunately, many people fall in love with homes outside their price range, but they end up resenting the place because of the financial strain it created. You’ll be better off financially, mentally, and emotionally by staying within your budget.
Keep in mind, too, that the amount you can really afford may be different than your mortgage approval. The amount you’re approved for might be over your budget when you consider your debt and other expenses. Most experts recommend having a mortgage payment of one-quarter to one-third of your take-home pay.
8. The interest tax deduction may not matter.
Home buyers sometimes use the mortgage interest tax deduction to justify getting a house outside their price range. However, you’ll only benefit from this if you itemize your deductions.
The standard deduction for 2020 is $12,400 for single filers and $24,800 for married filers. If your itemized deductions total less than this amount, you should take the standard deduction instead. This means that the mortgage interest tax deduction won’t have made any difference in your tax payments.
So are you ready?
Buying a home is one of the biggest financial decisions of your life, so there’s lots to consider along the way. Most importantly, take your time. Listen to advice from experts and from the people you trust, and don’t rush into anything. If you’re careful and patient in your search, you’ll find the perfect home.