8 Financial Decisions You Should Make Before Buying a Home

Thursday, June 25, 2020, 6:00 AM | Leave Comment

A home might be the single largest investment you make in your life. As such, you must plan well so you never regret the investment.

A home comes with mortgages and other associated costs that might affect your income for more than two decades.

As a homeowner, you need to assess the short-term and long-term financial implications of buying a home.

Below are eight decisions to make for a sound investment.

8 Financial Decisions You Should Make Before Buying a Home

  1. How Much Can You Afford?

    Can you really afford the house you want to go for? Your financial ability determines where you live and the kind of house you buy. In your personal finance analysis, consider the mortgages, insurance, taxes, utilities, commuting costs and any other associated costs. Your income after taxes determines what types of estate you can go for. As a rule of thumb, do not use more than 25 percent of your income after taxes on mortgage. If you do that, you may never save a dime.

  2. Consider Mortgage Interest Rates

    You need to go for the lowest mortgage interest rates if you are to pay your mortgage on time. Today most banks offer low-cost mortgages, but are there any hidden charges? Although mortgage interest rates are low right now, there is no telling when the rates might go up. Grab the opportunity while you can and you will enjoy huge savings.

  3. Are There Any Carrying Costs?

    The best financial decision you can do is buy a ready home. There are so many homes on the market that need a lot of maintenance. Plaster cracks, missing pipes, cracked floors and so many other damages might cost you hundreds of thousands of dollars. Although these homes may cost a little less, most of them have unseen problems that you might not consider in your calculations.

  4. Build your Credit

    Before you can start searching for home in a place with a playground and a good family life, consider improving your credit score. Start by cleaning your high interest loans such as payday loans and credit cards and pay your bills on time. A lower credit score means you are a high-risk borrower and financial institutions will charge you high interests. Instead of paying all these fees, why not get your credit score up.

  5. Get Your Cash Flow Right

    It is not enough to buy a house with the hope that you are getting a pay rise next year. Before you start house-hunting, ensure you have your finances right. You need enough money to cover expenses beyond the mortgage and taxes. You need money for utilities, insurance, repairs, your kids’ school fees, and so much more. If you come short on your budget after your financial projections, it is better if you managed your cash flow before thinking of a home. If you aspire to look into homes for sale in Temecula or your dream location, do your calculations and how much you need to make every month to afford a home there.

  6. What is the Resale Value of the Home?

    If you need to sell your home after a year, will it fetch the same amount you bought it, more, or less? There are so many costs associated with homeownership including taxes and real estate agent fees that affect how much you pay for a home. If the home cannot pay you after a year, you are better off buying in another location. The trick is to think like an investor who wants to sell the home and not like a homeowner.

  7. Don’t Count on Tax Breaks

    Most people prefer owning a home to renting because of the tax breaks. However, the tax breaks only come when you can pay your mortgage every month without fail. However, you cannot peg your hopes on the tax breaks as the rules can change. When you run your numbers, make a point to get debt-free without considering the benefits that come with tax breaks.

  8. Clear Your Debts or Get Payments Current

    Delinquency on your credit report means you are not good at paying debts. Some lenders might refuse your mortgage application and some will charge you high interest rates. You can take care of the delinquency by getting the payments current or paying off any debts you may have with a lender or a collection agency.

Your finances determine the size and location of the home you buy. They also determine how well you take care of your home and your family after purchase. As such, you need to be very careful before shopping for a home.

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