Low home prices and interest rates might seem very attractive to you, and you might want to buy a home before these prices and rates start going up. However, your financial situation might make it difficult for you to buy a home at the advertised price, while paying a low interest rate. Interest rates that are advertised by lenders are usually reserved for home buyers with stellar credit score, so you might end up paying significantly more on your loan than you were expecting to.
Many first-time home buyers are so blinded by the low interest offers advertised by lenders, that they forget all about the large down payment needed in order to avoid paying for Private Mortgage Insurance, and about the fact that their credit score will have a big impact on the interest rate that they will actually be paying. Here are a few questions that you should ask yourself before thinking of buying a home.
Is This a Good Time for You to Buy a Home?
Buying a home is very expensive initially. If you wish to receive better rates and not be required to pay for Private Mortgage Insurance, your down payment will have to be at least 20 percent of the total loan amount. That can mean several tens of thousands of dollars for an average priced home. Besides the down payment, you will have to pay for inspections, and various closing fees, which can come up to a few thousands of dollars, as well. There are several alternatives to making a large down payment, but you will probably end up having to spend more elsewhere, and maybe end up spending more than you would have on the down payment.
You might think that the large initial cost is the only expensive part of buying a home, but you also need to keep in mind that you will have to pay tax on your property and homeowners insurance. The upkeep of your home can also be very expensive, but this depends on many factors. Your home might need an expensive roof, plumbing or electrical repair, unexpected expenses that might take you by surprise.
Do You Have Good Credit?
You can probably qualify for a mortgage loan with a less than good credit score, but you will have to pay a much higher interest rate. A perfect credit score will most likely guarantee you the best current mortgage rates, but anything less and you will start to see those rates climbing. The difference won’t be that high, unless your credit score is lower than 700, but, over time, you will feel the difference in your wallet.
If your credit score is lower than perfect, you might want to take a little time to try and improve your credit score before getting a mortgage loan. You can start by paying off other debt, and making sure that all your payments are on time.
Is Home Ownership for You?
Some people buy a home and end up feeling that they have made a mistake, that renting was better for them. Being a home owner comes with larger responsibilities, like taking care of the house, making repairs and maintaining it. Sure, you can hire someone to do it for you, but hiring someone for every little task will become very expensive, so you’ll be better off learning how to do most minor repairs and maintenance work yourself.
If you are looking for a home that needs less maintenance and has a smaller chance of needing major repairs, then you should look at apartments. You will still be responsible when something breaks, unlike when renting, but it will be fairly low maintenance compared to a house.
Are You Going to Live There for a Long Time?
Like we’ve mentioned earlier in this article, buying a home comes with some pretty high closing costs. If you plan on moving in the near future, you will recover the money that you put down and the monthly payments, but not the closing costs. However, to build equity in your home, you will need to live there for a longer period of time. The monthly payments that you make in the first years will go more towards the interest, so the equity will build up very slowly. Selling your home after a short period of time can result in you losing money.
Becoming a home owner is a dream come true for most people, but it comes with great responsibility, and a large number of expenses. Ask yourself the questions listed in this article before you start looking for a home, and find out if home ownership is for you, or if you would like to postpone it for a few more years.