A home purchase will likely be the single most expensive purchase you make in your life and with this amount of money on the line, you need to make sure that you have prepared and researched ahead of time before making this decision so that you do not have financial regrets soon after your closing date. If you have never purchased a home before, there are many things to think about beyond just how many bedrooms you would like and what town you want to live in. Here are some things you should consider before searching for your future home.
1) How much home can you afford?
There are numerous calculators out there to help you determine how much home you can afford; even we have one of those. However, make sure that you do not just rely on the numbers that are required of you from the calculator. Whatever home you are contemplating, you will need a minimum of 20% as a down payment. You may fall into a situation that exempts you from this number; however, a good starting point is 20% in cash.
Whether your home is new or old, you should also plan to have $5,000 to $10,000 in cash allocated for home repairs. You may have the best home inspector on the planet; however, they can always miss something and usually when something falls apart in your home, it's an expensive repair. Finally, before you close on your home, you want to make sure that you have at least 6 months of mortgage payments reserved before you close so that you have a cushion for your finances should any unexpected events arise.
2) How long do you plan to stay in your home?
When you contemplate purchasing a home, you should think about buying it with at least the plan of living there for a few years. Yes, life can change and opportunities may arise; however, for most home sales, the seller is required to pay the realtor costs, which typically cost around 6% of the home sale cost. So, you want to ensure that you plan to spend enough time in your home that your home value should rise at least enough to cover the cost of paying for a realtor. Otherwise, when you sell your home, you will lose money on the sale, as the realtor's expenses will eat into your profits.
3) What is the neighborhood like?
You may love the look, feel and location of your home; however, if you are one of the only people who feels this way, then you may want to consider another home. If you buy a home that is in a good school district, you may pay 5-10% more than you were expecting; however, when you go to sell your home, you will rest assured that you are in a neighborhood that other people want to live in. If you buy a home in a less desirable community, you may get a good deal up front; however, when it is time to sell your home, you may not be happy with the offers you receive. Home buying sites like zillow.com or realtor.com give lots of information on neighborhoods and the value they bring to homes.
4) Are you prepared for the extra costs of home ownership?
Home ownership allows you to build equity and invest in a community; however, home ownership also comes with a number of ongoing costs and even though you do not pay these on the closing date, you want to account for them before you actually close. Before you buy your home, try to determine your average monthly utility bills as an extra $100 to $200 a month, depending on your square footage adds up over time. Will you need to pay for lawn care or for lawn equipment to care for your lawn? How old are your appliances and when do you think you may need to replace them? There is more to home ownership than just the closing costs of day one and you want to make sure that you are prepared to handle these extra costs as they add up.