The Factors That Matter When Buying A House
For most of us, buying a house is truly a life changing event. And when trying to decide on which home to purchase, buyers must understand which factors impact the decision. When buying a house, be prepared to take a deep dive into your current and future financial situation, interest rates, credit scores and down payments.
With that in mind, keep the following on hand when buying a house.
Your Finances
Buying a house is typically a 15 or 30 year commitment. Before jumping in, make sure this long term financial commitment is something you will be able to afford both now and in the future.
Don’t forget to also factor in taxes, maintenance and insurance. To start, it can be a good move to consult online calculators to help get you an estimate of what you can afford.
The Best Mortgage for You
There are a few options for the type of loan you can get for your mortgage. Usually, buyers choose between an adjustable rate loan and a fixed rate loan.
With a fixed rate loan, the longer the term, the less you pay each month. But in the end with the extra interest, you’ll end up paying more for the home.
Meanwhile, an adjustable-rate mortgage, or ARM, has a fixed interest rate for an initial period, followed by a period when the lender may periodically adjust the interest rate. While an ARM might seem like a good idea, you need to consider how much your monthly payment could increase alongside your ability to pay if it does increase.
Credit Score
Before you go out looking for a house, take a look at your credit score. Your credit score will affect what you are able to borrow and at what rate. If your credit score is 740 or higher, you will be able to get the best mortgage rates.
But don’t worry, you can still buy a house even if you don’t have great credit. You may have a higher interest rate if you have a bad credit score but it still can be done. Be prepared that a higher interest rate will you cost you more per month. And If your credit score goes too low you might not qualify for a mortgage at all.
Buyers will want to try to raise your credit score before you buying a house. Also check your credit report for errors that may be bringing your score down.
Purchase Price
Simple math says that the higher the purchase price of the house you want to buy, the more you can expect to pay per month. Therefore, be sure to consider your budget and how much you can afford when you are house hunting. Also try to think ahead.
Are you going to expand your family? Will you soon be empty nesters? Compare the prices you find to your budget and determine what home you can afford.
How Much You Can Put Down
Having a big down payment is one way to lower the monthly costs of a mortgage. When you put down at least 20% you can get a lower interest rate and avoid paying Private Mortgage Insurance or PMI. This is the best way to get the lowest monthly payment for your home.
Buying a house is a process. To navigate through it as quickly and easily as possible, buyers need to be prepared. Take the time to set yourself up for success. The more time you put in up front, the happier you will be with the result.