Buying a home is not just a matter of deciding what type of house you want or the number of bedrooms and bathrooms you need. As the process is mostly a financial undertaking, you need to focus more on how you are going to afford a new house.
If you’re serious about taking the plunge to homeownership, it is only essential to get a sense of what it will cost to buy and own a house. Here are some questions that you should ask yourself before purchasing a property:
What should be my budget?
When deciding on a budget, don’t just come up with an amount without considering your income, savings, credit, or overall financial situation. The best thing that you can do is get a mortgage pre-approval. Mortgage lenders in Utah note that this should come before searching for your ideal home.
A pre-approval involves working with a lender who will look into your finances (credit history, debts, income, and assets) to determine how much money you can borrow. This is very helpful in creating a budget. It is best to go below the maximum amount you are approved for. That way, you can avoid financial hurdles.
How much down payment should I make?
The typical down payment is 20% of the purchase price, but this is impractical for most buyers. Fortunately, there are now loan options that require down payment as little as 3% to 5%. The Federal Housing Association (FHA) loan is one popular option, as it only requires a down payment of 3.5% and borrowers with low credit score can qualify for this.
There are also conventional loans that allow you to make a low down payment. You should know that making a down payment smaller than 20% requires paying private mortgage insurance (PMI). This protects the lender in case you default on the loan. This will be removed when you have at least 20% equity in your home.
In most cases, it is a good idea to hit the 20% mark to avoid the PMI and extra monthly payments. Just make sure that you don’t drain your savings. If you can’t make a sizeable down payment, you might want to save first or pay a little amount for PMI. Talking with a reputable lender can help you make an informed decision.
What are the supplemental costs I need to think about?
Apart from the loan and the down payment, you also need to think about the closing costs, which refer to all the fees required to close the purchase. The amount of closing costs depends on the amount of your loan, as well as the tax law in your area.
You also need to consider the homeowner’s association (HOA) fees and property taxes, which can add hundreds of dollars in your monthly payment. There are also the potential maintenance costs, especially if you’re thinking of buying a home that needs some work. You can consult your lender about these fees so that you can budget accordingly.
Be financially prepared when buying a home. Take note of the things mentioned above, do your homework, and work with a reliable lender to work out the financial aspects of buying a house.