Owning a home has always been thought of as a key component to living the “American Dream.”
Yet at the onset of the recession and downfall of the housing market, many families found themselves underwater, in foreclosure, or living in a property they could no longer afford causing many millennials to shy away from the idea.
Fortunately, the economy and housing market have bounced back, making the dream once again a goal for many.
If you happen to be interested in the prospect of becoming a homeowner, understanding what’s involved in finding a property and what your responsibilities are once you do, can make things a lot easier. Since a house is likely one of the biggest investments you’ll make, it is imperative to keep the following in mind:
1) It's More Than Just a Down Payment
It can seem to the inexperienced home buyer that all you need is 3 – 20% savings to cover the cost of the down payment on a property. Though it is very important to have this amount in savings, there are other associated costs that need to be considered.
You’ll need to have an initial payment for your homeowners insurance. And you may be required to hire an attorney to handle the legal angles of the real estate transaction.
The property will have to be appraised by a professional, and you’ll also have to work with a title company during closing to ensure the property is free and clear from liens and lawsuits. This can equate to another several thousand dollars. It depends on where you’re thinking of moving to, which service providers you choose, and the condition or status of the house.
2. Use the 28/36 Rule
When trying to discern whether you can afford to purchase a property, you must dig deeper than the surface. Most people make the assumption that having good credit and a sizable downpayment is all that is required to sustain the costs of acquiring a residence and gaining final loan approval.
In addition, there are hidden costs to being a homeowner that many are unaware of until after they’ve already moved in. To avoid getting in over your head it is imperative to thoroughly analyze your finances prior to closing.
The 28/36 rule can be applied to ensure you can feasibly afford a property and all related expenses. Essentially it means that your mortgage payments, insurance, and taxes should total no more than 28% of your income while your debts and other expenses should remain at 36% or less.
Start by calculating your monthly income after taxes and deductions. Now calculate your current monthly expenses. Are your current debts more than 36% of your income? Next, multiply your monthly income by 28% to determine how much you can afford to spend on housing costs. If your debt exceeds 36%, this number needs to be reduced to avoid the stress of living paycheck to paycheck.
3. Home Inspections are a Must
You’d be surprised how many people have bought a property without having had it inspected. A home that looks aesthetically appealing can often cause buyers to believe the property is in good condition. However, there could be problems lurking that you’re not aware of. Before purchasing a home, a home inspection is a must. Read their report and final remarks about the inspection before making a final decision about purchasing the residence.
Home inspections can often drudge up things that you weren’t aware were a problem. Though minor maintenance and repair tasks may be acceptable, investing in a property with significant damage to the systems or structure is not an economically wise decision. If your inspector tells you there are issues with the roof, foundation, plumbing, or structure of the property but you’re still interested in making an offer, at least you have grounds to request the seller make the repairs and/or to offer less on the home so that you can then invest the additional funds to get it back up and running.
Being a homeowner is still as rewarding as it was decades ago. You get the opportunity to create a space for you and your family to grow. When managed correctly, a house can also be an indispensable asset that can help you along your journey to achieving other dreams. Before jumping into it, however, make sure that you’ve done the math to ensure you can comfortably afford it, accounting for costs other than the down payment, and more importantly, that you’re purchasing a home that is structurally sound and safe. In doing this you’ll find that the life of a homeowner is pretty sweet.
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