October 31st, 2012
Purchasing a home is no doubt one of the largest – if not the largest – investment a person will take on in their lifetime. Therefore, the decision to buy a house should be thought through carefully.
There are several factors individuals consider to determine whether the timing is right. These considerations may include job security, the length of time they plan to remain in the home, family planning and market conditions. However, one of the most dominant factors that drives consumers’ home buying decisions is cost. Owning a home is a large expense, and one of the biggest mistakes individuals make is only factoring in their monthly mortgage payment. The added costs that come with homeownership can make a person’s investment more than they planned for, which can lead to financial strain. To avoid taking on more than they can handle, there are several aspects of purchasing a home consumers should consider before taking on the process.
The price of the home and the mortgage rate attached is undoubtedly the first cost buyers should weigh. Most experts discourage individuals from taking on a mortgage that imposes a monthly payment which exceeds 28 percent of their take-home pay. This is because monthly payments that exceed this percentage may make it difficult for consumers to meet their other financial obligations, save money and plan for retirement. Working with a mortgage consultant can help buyers compare home prices and determine the rates for which they may qualify. In addition, utilizing tools such as mortgage calculators can help individuals determine their cost threshold based on their particular financial situations.
Homeowners insurance is crucial to protecting consumers’ home investment. However, these costs can be substantial, making it important that individuals research different providers, compare offerings and purchase sufficient coverage. For example, some buyers only purchase enough to replace their items if their home is destroyed. However, if the cost of rebuilding exceeds the value of their replacements, they will be required to carry the remaining costs out of pocket. For this reason, homeowners should determine how much coverage they will need to rebuild their property in the event of a disaster.
In addition, standard homeowners policies do not cover certain types of catastrophes, such as flooding, earthquakes, landslides and sinkholes. Instead, owners may be encouraged to purchase riders or supplemental policies. While these policies can add greatly to their overall payments, they can shield homeowners from financial devastation in the event of natural disasters.
Home issues may arise, and the cost of repairs and replacements is another expense individuals must factor in. Those who currently live in apartments or condos are accustomed to having their landlord or management company replace water heaters, appliances and other large-scale items. Homeowners, however, must cover these costs on their own, so having money in savings that can be applied to these obligations can help owners avoid financial strain.
4. Closing costs
Owning a home can be expensive, but the process of actually obtaining a mortgage comes with overlooked costs. There are several fees associated with the buying process that can total into the thousands of dollars. These include title search, attorneys costs, processing and document fees and other expenses. However, many of these costs can be negotiated with the mortgage service company a person uses, so it’s important that home buyers do their research on which types of fees may be waived.
Owning a home can be a worthwhile investment and help buyers accomplish their financial goals. However, it’s important that individuals are fully informed about their overall costs so that they may purchase a property that falls well within their price range and gives them the flexibility to continue saving money.