Last Updated on 25/12/2023 by Deepak Singla
Buying your own house in 2021 is exciting. It gives you the possibility of living the life that you dream. It is, however, a complicated task to do and has a long list to accomplish, which includes:
- The assessment of your financial status
- Getting in touch with property specialists
- Assessing potential properties
And the list goes on. There might be a lot of things that you need to consider when purchasing your first home, but if you know the factors that you need to keep in mind, getting a house will be easy as 123.
The most important consideration before jumping into this big decision is to analyze your financial status. Here are seven financial factors that you need to consider before closing the deal:
Credit Score
Your credit score will show if you pay your bills on time. This factor is necessary when looking for a potential lender to aid you with your mortgage. A high credit score will significantly increase your chances for loan approval. It gives an impression to Non QM Lenders, that you can manage your finances.
On the other hand, a low credit score will damage the possibility of bank house financing. Adding a mortgage to the list of things that you need to pay is a bad idea.
Good Read: The Importance of Your Credit Rating
Debt-to-income Ratio
Homeowners who missed to gauge their finances before purchasing a house may be eating bread and jam in the end. A thorough financial capability analysis will help you evaluate if you can afford your target house. If you need assistance to do such, you can choose to search for the right home finder services. Most home finder companies offer free financial assessments. An alternative way is to seek help from a lender, such as a bank.
A house finder or the bank will do a debt-to-income ratio. First, you have to declare your total income. The total income includes your monthly salary, savings, and inheritance. The next step is the calculation of your total projected debt. This covers the new mortgage application, car loan, credit card bills, telephone charges, and other payments.
For example, you have a total income of $4,000 each month and a total projected debt of $4,500. Upon calculation, the debt is more than your income. For this reason, the bank might advise you to wait for some time until your debt-to-income ratio is lower.
If your income is higher than your potential debt, the bank will confirm that you can afford your dream home. Also, be mindful of other considerations like your child care expenses or support to your aging parents. Make sure that you include all other monthly costs in your calculation. In this manner, you can make sure that you are financially capable of living a comfortable, hassle-free life.
Good Read: 4 Simple Ways to Pay Off Your Mortgage Early
Closing Costs
All expenses that involve the processing of the property documentation fall under the closing cost. The common documents are the deed of sale, title, and permit. The closing cost is applicable to all houses for sale. It usually amounts to about 2 to 3%of the total cost of the house. It is best to include this factor when you discuss your mortgage with the lender.
Property Tax and Home Insurance
You need to pay your property tax on time. Remember that there are huge penalties to unpaid taxes. You may try to include this cost in your mortgage. Homeowners insurance is your protection against unforeseen situations like natural disasters and house robbery. If you have existing auto insurance, you may opt to have homeowners insurance added to its benefits.
Good Read: Why Do We Need Homeowners Insurance?
Maintenance Cost
When you have a clogged toilet or have a busted electrical line, the maintenance man is the first person to call. Upon assessment, you need to pay for the materials and labor fee of the maintenance man. The question now is if you have the money to pay for the maintenance cost.
While some home insurance covers maintenance costs, you will still need to pay a deductible amount. If you, however, used your home insurance to cover the maintenance cost, the premium of the insurance might increase during your renewal period.
Cost of Living
The cost of living way back the 90s is much different compared to the present time. A condominium in the middle of the city costs higher than a house in a seaside town. In addition, you need to include the cost of living expenses such as:
- Food
- Utility – electricity and water
- Travel
- Entertainment and recreation
- Miscellaneous expenses
Retirement Plan
In preparation for your future, you also have to consider your retirement plan. You may consider selling the property in the next 10 to 20 years. Otherwise, you may keep the house then give it to your next of kin as an inheritance. In whatever case, you must ensure that by the time you retire, you are mortgage-free. It will ensure a financially-free retirement for you.
Remember that homeownership is a big responsibility and a long-term financial commitment. Before engaging in a deal, contemplate on the lifestyle you want to have. Ask yourself the following:
- Have you traveled more than you stayed at home?
- Do you want to settle in one place?
- Do you plan to start a family?
Keep in mind that once you have decided to buy a house, you must pay for all its expenses. A home is something that is challenging to sell as it usually entails a large sum of money. Based on the financial factors above will assist you in checking if homeownership is worth your money, effort, and time.
Author Bio
Sarah Smith writes journals, and informative blogs focused on the real estate business. She is committed to educating more people financially on the growing real estate economy. Her articles provide information on the best House Finder and properties in the market. On her free time, Scarlet enjoys reading books and traveling with her friends.
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