Let’s say
you want to buy a home but don’t know where to start. How should you begin? The
first thing to do is to determine your price range, which means knowing what mortgage
amount you qualify for
and the amount
available to you for a down payment and closing costs.
Determine
Your Price Range
Start by
contacting a lender (e.g., bank or mortgage company) and ask to be pre-qualified
for a loan. Lenders will consider your income, debt, and credit score to establish
your maximum loan amount. This is typically the most important information you
need when considering your price range.
The second piece
of information you need is the total amount of cash you’ll have for your down
payment and closing costs. The size of your down payment is key to determining
your price range. Two buyers who qualify for the same loan amount but have
different down payments will probably fall into different price ranges. Don’t
forget about closing costs, which are generally high in our area. You can find an
in-depth explanation of closing costs in my article, Demystifying Buyer Closing Costs.
When looking
at listings online, don’t skip over information about real estate taxes. Make
sure you know how much the taxes are and how they’ll affect your monthly payment.
For most purchases, one month of real estate taxes is included with the principal
and interest in the monthly mortgage payment. The higher the real estate taxes,
the higher the monthly mortgage payment. If you put at least 20% down, you may
be able to pay the taxes separate from your mortgage, but you’ll still need to
pay the total tax amount every year.
Be
Realistic About What Your Money Will Buy
When starting
your search, keep in mind that not all features are as readily available in all
price ranges and areas. For example, given the same price range, it can be much
harder to find new construction or a large lot in one area than in another. Be
realistic about the features you can expect to find in your target area, and
consider whether you’re willing to explore other areas if you can’t find what
you’re looking for.
Must-Haves
Versus Nice-to-Haves
When deciding
what features to look for in a home, separate them into must-have and nice-to-have
categories, depending on your family and lifestyle. Thinking this through in
advance will help you choose the home that best suits your needs. Try not to be
wowed by a well-staged home that looks great but lacks one or more of your must-have
features. Cosmetics can be changed relatively easily, but changing room sizes
or the number of bedrooms or bathrooms can involve major construction projects
and high costs.
Factor
in Ongoing Costs
In addition
to the mortgage, the cost of owning a home entails utility costs and ongoing maintenance.
Heating costs in particular can vary widely, depending on the type of heat and
the age and construction of the home. For homes lacking adequate insulation, heating
costs can be high. Ask for a monthly estimate of the seller’s utility costs,
including heat, before making an offer, and factor those costs into your budget.
If you’ve
never owned a home, it’s easy to underestimate ongoing maintenance costs. Typical
maintenance costs include routine HVAC maintenance, plumbing and electrical repairs,
appliance repair or replacement, gutter cleaning, chimney cleaning, driveway
sealing, and lawn care. When considering what mortgage amount is right for you,
make sure you’ll have enough left over to cover maintenance costs, which are sure
to arise.
Read more of
Annette’s real estate articles
for the latest real estate advice.
If you’re planning to buy or sell a home, contact Annette
Nelson at (610) 247-7892 or annette@preferredhomes.com
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Copyright © 2020 by Annette Nelson. All Rights Reserved.
