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If you’re like most people, purchasing a home is the biggest financial commitment you’ll ever make. For this reason, it’s important not to get caught up in the bells and whistles of home-buying—that beautiful chandelier in the kitchen or built-in pool in the backyard. Instead, focus on the financial aspects of being a new homeowner, such as mortgage rates, taxes, and other expenses. Read this article to learn more about the top 5 considerations you need to make before buying a house:
1) Set Realistic Targets for What You Can Afford
Before you even start your search, you need to take a close look at your personal finances and make a realistic assessment about what you can afford. The best way to do this is to calculate your debt to income ratio, since your total debt should not exceed one-third of your total income. Simply multiply your monthly gross income by 0.33 to find your debt limit, and then subtract any outstanding debts you already have from your debt limit. The amount remaining represents how much you will be able to spend on monthly mortgage payments.
2) Ask for Utility Bills
Inquiring about the average monthly costs of utility bills will help you better gauge whether or not your dream home is worth the investment. For example, you’ll wind up paying a fortune to heat homes with high ceilings and solid walls. Ask for bills from both summer and winter months to get a clear picture of how much you’ll pay. Consider that high utility bills may also be an indication of outdated appliances, lack of insulation, or leaky air ducts; these defects might mean you’ll end up spending a lot of money on home improvements after you’ve signed the dotted line.
3) Check the Property Taxes
Don’t be blind-sighted by property taxes. Your prospective home may be located in a neighborhood where homes are frequently reappraised at higher tax rates, in turn causing you to pay considerably more than what you expected. Obtain both recent and old tax bills from the seller or search newspaper archives to get an idea of how frequently—and by how much—property taxes are likely to increase.
4) Get a Home Inspection
Your abode-to-be may look stunning on the surface, but chances are it’s far from perfect. Getting a home inspection will reveal any defects your potential new home has so you can negotiate a lower selling point or forego your purchase altogether. Many homes have minor, curable defects that won’t cost you a ton of money. Bigger problems—such as structural defects, old roofs, or poor water control—are costly improvements that could ultimately turn into deal-breakers.
5) Find the Right Mortgage
Of course, the biggest financial consideration you’ll need to make in regard to your new home is your mortgage. Adjustable interest loans may be a good option if you’re only planning to stay in the home a few years, as the interest rates during the adjustment period on these loans are much lower than those of fixed interest loans. However, if you’re planning to stay in your home for a number of years, a fixed interest loan provides you with the most financial stability because your rates will never increase. Thoroughly research mortgage rates before locking yourself into one; making the right decision will help you clear your debt faster.
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