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Whenever you buy a home, especially if it’s your first home, there are several crucial questions you must ask yourself before you make such a large financial commitment. Buying a home is never something you should do on a whim or because your friends or family members want you to. A home is likely the biggest purchase you will ever make, so ensuring you get all the financial details right in the process is going to be key to making sure it’s a solid investment.
Here are some examples of questions to ask yourself before you take the leap:
You might have heard of friends or family buying their first homes without paying a down payment at all. While this may have worked for some people, the overarching result of this trend was a housing crisis, as home values dropped and people had trouble paying the mortgages on their underwater homes. Plus, it’s typical to have to pay for Private Mortgage Insurance if you put less than 20% down on a home, which adds additional fees to your bill every month. So, when you are shopping for a home, try to focus on building that large cash savings for a down payment and closing fees first so that when you do actually purchase, you will own a large portion of it.
In real estate, location is everything. You can make additions to a home, and you can make upgrades, but you can’t move a home away from railroad tracks, busy highways, or bad neighborhoods which may lower the home value later on. Really consider the location when you buy a house and speak to realtors about trends in the area. Are certain parts of your city becoming more and more enticing to buyers? Are certain areas becoming more crime ridden? An experienced realtor will know the answers to these questions and will hopefully have your best interests in mind. Do you own research too and make sure you look at every angle, like school districts or commercial zoning to determine the value of a specific neighborhood.
Although mortgages are available to people with low credit scores, the truth is that the higher your score, the better interest rate you’re going to get. While it might not seem like one percentage point in an interest rate makes that big of a difference, it could actually mean thousands of dollars on a 30-year mortgage. So, if you need to repair your credit, focus on that for a few months before buying your home or applying for a mortgage. With some focused effort, paying down debt, and clearing any negative items on your credit report, you can be well on your way to a higher score in a shorter amount of time than you think.
It takes homes several years to accrue value, so if you plan on only living in a home for a few years, it might be better to rent. Buying and selling homes are costly and time intensive endeavors. You don’t want to lose money on a sale because you weren’t living in a home long enough to build equity. Take a good, hard look at your plans for the future and see if buying a home is in line with your goals.
Ultimately, taking your time with the home buying process, becoming educated, building your savings, and ensuring your credit score is the highest it can be are the best ways to prepare for homeownership.
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