Buying a home is a huge milestone, one that must be approached methodically, and with the utmost patience.
The most important aspect to focus on when preparing to purchase a brand-new home is the health and potential growth of your finances.
No matter what style of home or location you choose, you will not be moving into a new house if your wallet is not up for it.
To ensure that you’re ready to put up the money once you’ve chosen your ideal home, here are five financial questions you need to ask yourself as you prepare to buy a new home as provided by the experts at Rex Homes.
1. What Budget is Best for Me?
The price of your home, ideally, should not exceed 25% of your gross monthly income.
All of the following factors must be included in your budget estimation:
- Principal and interest payments on the mortgage loan.
- Homeowner’s Association (HOA) fees
- Home insurance
- Maintenance and utilities*
*Create a secondary budget to take care of this aspect of home ownership.
Normally, you should expect to set aside the equivalent of 1% of the house’s asking price to cover maintenance and utilities.
2. Old vs. New – Which is Right for Me?
TV house flippers have made extensive renovations on old homes look easy.
So much so, that new and experienced home-buyers alike are flocking to put aging fixer-uppers in their names!
Although old houses seem to offer a once-in-a-lifetime savings opportunity, they are also notorious for surprise costs.
There may be electrical wiring or plumbing that is no longer up to code that requires repair before you can safely move in.
These costs can add up quickly, so be prepared.
3. What are the Closing Costs?
Budgeting for a brand-new home extends much further than the down payment – that’s only the first step!
Before you even move in, you’ll also have to pay closing costs, which include:
- Loan origination fees
- Title research
- Paperwork processing
- Administrative fees
This all usually costs around 2-5% of the asking price.
4. Does the Home Require Renovations or Repairs?
This is not only a question for budgeting purposes, but also legal matters.
Renovations and repairs are very different types of work, and there may be differences in required permitting.
For example, addressing poorly constructed plumbing may qualify as a repair.
In contrast, shattered or cracked sliding glass doors and windows may be categorized as a renovation.
Pay close attention to what needs to be fixed in the home to determine what costs and permits you will need.
5. What Type of Ownership is Best for Me?
There are seven primary types of home ownership.
The major differences between them lie in the number of people that own the property.
For example, you could choose to list the home under your name alone (sole ownership) or have it belong to you and your family or partner (joint tenancy, tenancy in common).
Should anything happen to your home, ownership must be clearly defined for financial, legal, and insurance purposes.
To assist you in planning your finances for the purchase of a brand-new home, enlist the help of a mortgage professional.
A qualified mortgage expert will be able to guide you in making appropriate decisions for your budget and home, helping you to keep your finances intact every step of the way.