6 THOUGHT-PROVOKING QUESTIONS TO ASK YOURSELF ABOUT (EVENTUALLY) BUYING A HOME
Friday Oct 08th, 2021
1. WHAT IS YOUR MOTIVE FOR BUYING?
Buying a home will drastically affect your lifestyle. Just because everyone else is doing it, doesn't mean you should. And just because your parents did, or you think society expects it, doesn't mean you should. You should buy if it makes sense for you, after weighing the pros and cons of ownership (expenses, flexibility, life goals, etc.). Sometimes the right decision is renting or at least buying differently than you expected to. Read on for more thought-provoking questions.
2. HOW WILL YOUR CREDIT RATING AFFECT YOUR PURCHASE PRICE?
Credit rating affects the interest rate. Interest rate affects the payment you'll make, which affects how much loan you can get and the house price you can afford. For example, if two people have the same down payment and income, but different credit scores, then they'll QUALIFY for different payment amounts. One person might qualify for a $1,400/mo. payment and the other person might qualify for a $1,200/mo. payment. The person who qualifies for more each month can buy a more expensive home...even though both people make the same income and have the same down payment. Your real estate agent for life! So it's important to focus on raising your credit profile by reducing debt, getting "good" credit, and paying on time. You don't have to buy the more expensive home, but it's nice to have that option if you need it.
3. SHOULD YOU STRETCH TO BUY A MORE EXPENSIVE HOME?
A better question is How much can you comfortably afford after considering your lifestyle and future plans? Although your lender might tell you that you can afford the expensive home, you may not want to pay that. If you're young and just starting your career, you may want to start with a smaller home or in a less desirable area, and then move up as your career progresses. You may be able to take advantage of rising prices in an up-and-coming neighborhood. Or you may want to invest more money in a retirement account, build a business, or travel, rather than putting it all into a mortgage. On the other hand, if you feel fairly certain you'll retain this home for more than 5 years, and you feel certain your income will rise, then buying your most expensive home might make sense for you. Your real estate agent for life!
4. ARE YOU AWARE OF REGULAR HOMEOWNERSHIP EXPENSES?
Paying for a home means paying for more than just the mortgage, taxes, and insurance. You can expect your "operating expenses" to be around .5% to 2% of your home's value annually. If your home is valued at $400,000, then you should budget for $2,000 to $8,000 in regular annual expenses, depending on the age and condition of your home. If that number leaves you gasping, you're not alone. Most people drastically underestimate the cost of maintaining a home. And these are routine maintenance items, like resealing your deck, fixing leaks, lawn treatments, appliance servicing. Often people don't notice how much they spend on their house, but every little bit adds up. You might not have nearly those kinds of expenses if you're renting. This is one reason to consider a smaller home, or a home that’s already been remodeled, or a condo.
5. WILL YOUR HOME NEED MAJOR REPAIRS OR REMODELING?
If you buy a home that will need a new roof, you’ll have to plan ahead for that expense. Start a "roof savings account" or a "plumbing replacement account" or a "retaining wall account." Whatever it looks like will need major work down the line. Your real estate agent for life! For example, if you buy a house that will need a new roof in 3 years, then you have 3 years to save for it. Add that to your annual maintenance costs. If a new roof will be $15,000 in five years, then save an extra $5,000/year for that roof. Owning a home is not cheap.
6. DOES THE TYPE OF HOME AND LOCATION SERVE YOU? When buying a home, it would be nice to live in the perfect home in the perfect location. But a less-than-perfect home might help you save money. And if it's in an up-and-coming neighborhood, you might profit more on resale. Also, if you make your first home an investment property in a high rental area, you might be able to hang onto it when you're ready to move in a few years. That would be a nice leg up on building your lifetime wealth. In other words, the perfect home might relate more to your motivations than your dreams of perfection.
I help regular people buy homes. Call me for an appointment to discuss your steps. There’s never any obligation… just clear communication. Your real estate agent for life!