With interests rates still at record lows, many people are opting either to buy a first home or to purchase a new one. However there is more than price to factor into the cost of buying a new home, as I recently discovered when my husband and I became “home owners” this spring. We were just moving from downtown Columbus to the suburbs, so anyone planning to move to another state or across the country will have a different experience and will probably incur more expenses than we did.
Here are four key issues to consider:
When you start thinking about buying a house, make sure to check your credit report. You are entitled to free credit reports from each of the three credit reporting agencies every 12 months. If there are ANY discrepancies, open accounts that should be closed, or any other inaccuracies, file a dispute to get them corrected as soon as possible. One tiny error could lower your credit score and that could significantly affect your mortgage offer. For the same reason, avoid opening new credit accounts; that includes credit cards, car loans, store credit or payment plans (for furniture, appliances, etc).
Save for a down payment. Even if you can’t save up 20% down, make the largest down payment that you can afford, without completely wiping out your emergency fund. You will probably have to pay private mortgage insurance, or PMI, if you put less than 20% down, but the closer to 20% you can get, the less PMI you’ll have to pay. Don’t wipe out your emergency fund to make the down payment — and don’t forget to set aside a few thousand dollars for closing costs.
Be honest about the amount you can afford to pay month after month for 30 years – even if the bank has pre-approved you for more. We opted for a mortgage payment that wouldn’t be significantly more than the rent we had been paying. Don’t forget to consider property tax, homeowners insurance, extra commuting costs, and additional utility expenses to determine your total monthly financial commitment. If we had purchased a house one street over, our taxes would have been about $1,000 more per year.
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Once we knew how big a monthly payment we were comfortable with, we used an online calculator to determine the optimal range of home prices for us. MSN First Time Buyers page has many resources, including a home affordability calculator that can help you find the right price point.
Searching for your home
Start searching for houses that fit your requirements either online or by checking out open houses. Before we started our search, we decided on our principal requirements. Most important was the neighborhood because we wanted a good school district and an easy commute to our jobs and social activities. We also decided on the number of bedrooms/bathrooms and an approximate minimum square footage. We did not want this to be a “starter” home, so we needed a house we wouldn’t outgrow. Don’t buy something that is a great deal now if you’re going to outgrow it in five years — because selling it may not be possible within your time frame.
Interview a few real estate agents or ask for recommendations from friends or family. Our agent set up a customized search for us so we’d receive emails any time houses within our parameters came on the market or had changes in the listings. He never pressured us to look at anything or to continue to use his service, which we appreciated. Once we decided on several houses we wanted to see, he arranged appointments for us. After checking out the houses, we had a better idea of what the type of home we wanted (two-story vs. one-story, or split level) and other features that were important to us.
We found a homes we thought could be “it,” but after comparing prices and features with other homes, we decided they were overpriced and kept looking. A lot of listings showed “price per square foot,” which was helpful in comparing homes of different sizes. I took a notebook to each showing and wrote down stats, as well as any pros and cons for each house, so they would be easy to compare.
It’s important to consider the deal-breaker features for your house; for example, our home had to have a master bath, but it was okay if it had a shower instead of a full bath. Consider the condition of the house and how much work is needed before it wold be up to your standards. Don’t buy a fixer-upper if you don’t like to do home repairs and can’t afford to pay to have them done. We only looked at 10 to 12 houses before we found ours. It was move-in ready and only needed one room painted, and it had all of the features that were most important to us.
If you’re honest with yourself about your needs vs. wants and how much you can afford while starting your home search, you’re more likely to find the perfect house without getting into financial trouble later.
What are some of the things that you think are most important to consider in choosing a house?
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