Financial Things You Need to Know Before You Buy a House
This post was written by Alice, a writer on AvantCredit’s blog OnBetterTerms. Avant is an unsecured personal loan lender based in Chicago.
If you’ve been paying attention to the news lately, you may have seen that interest rates have started to rise from their all-time lows. The rates on 30-year mortgages are still incredibly low but the fact that rates are starting to increase has some people wondering whether now is the right time to buy a home. If you’re one of those people, make sure you consider these basic financial rules before you make a major commitment.
Can I afford the down payment? Since the financial crisis and mortgage meltdown, it’s very rare to be able to purchase a home without a 20% down payment. Plus, you’ll want to make sure you have some extra cash to cover things like closing fees and a lawyer.
Can I afford the monthly payment? Typically, you want to keep your monthly payment to around 25-30% of your gross income. However, that payment doesn’t just mean your mortgage. It includes your mortgage, homeowners’ insurance and taxes. Depending on the neighborhood you’re looking in, these things can really add up so be sure you have a good idea what your total costs may be before placing a bid.
Your credit score is important! Your monthly mortgage payment depends on what the interest rate on your loan is. While the general interest rate environment determines your rate to a large degree, the other important factor is your individual credit history. Buyers who have proven themselves as responsible borrowers in the past have a better credit score, and as a result, a lower interest rate. Even a small difference in your interest rate will add up over time as an extra $50 per month will become $18,000 over the course of a 30-year mortgage!
Houses cost money to maintain. You don’t want to clear out all of your savings to buy a house only to be surprised to find that your monthly expenses have increased drastically because you underestimated the cost of things like utility bills and home repairs. Talk to someone in your neighborhood or a friend or family member that you trust who can help you estimate what the annual costs for maintaining your house might be so that you know what to expect.
Once you’ve considered all of these things, you’ll be able to enjoy the home-buying process much more!