Seven Considerations Before Buying Your First Home
Buying a home is no small feat. There are so many different variables to consider, and many of them aren’t solely monetary. In this post, you’ll learn some of the primary
Budget - Determine how much you can afford to spend on a house based on your income, debts, and other financial obligations. Consider factors such as the down payment, closing costs, and ongoing expenses such as property taxes and insurance. A financial advisor can help you understand how the size of monthly payment will impact your other financial goals.
Affordability - To qualify for your loan, lenders look at two ratios when determining how much you can afford: the front-end ratio and back-end ratio.
Front end-ratio = Monthly mortgage payment divided by monthly income
Back-end ratio = (Monthly mortgage payment + other recurring debts) divided by monthly income
Different loan types have different ratio requirements, and you lender can find ways to help you if you fail to meet the minimum requirements.
Location - Consider the location of the house and how it fits with your lifestyle and needs. Think about factors such as proximity to schools, public transportation, and amenities. If you’re unsure about a certain neighborhood, it may even make sense to rent there for a short period to time to confirm if it’s worth putting down roots.
Size and layout - The size of the house and the layout of the rooms is also an important consideration. Think about how the house will meet your current and future needs, including the number of bedrooms and bathrooms and the size of the living areas. Asking more leisurely questions like, “How will I decorate this space?” and “Can I entertain guests easily?” are great ways to understand your space better before committing to it.
Condition - Consider the condition of the house and any necessary repairs or renovations. This can impact your budget and the time and effort you'll need to put into maintaining the property. While FHA loans require a property to meet minimum acceptable quality standards, some loans will give you a chance to improve the property with sweat equity. Keep in mind that many homeowners who take on “DIY” home repairs lose their patience after a while as it can be quite overwhelming, so a turnkey property (i.e. one that is already in great shape) is usually a better choice for most homebuyers.
Future plans -Think about your long-term plans and how they might be impacted by the house you choose. For example, if you plan to start a family or entertain guests regularly, you may want a house with more bedrooms or a larger yard. Pets are also a consideration as large dogs usually need more room to run and stretch out.
Legal and financial considerations - Be sure to research any legal or financial issues that may be associated with the house, such as zoning regulations, liens, or outstanding debts. Generally speaking, the title insurance you and your lender purchase are good protections against any issues.
