Things to consider before you look for a home

Since the title is pretty self explanatory, let’s jump right in!

What is the cost to buy versus rent?

Depending on how long you plan to stay in the area, home value trends, and your financial situation may make a difference in whether it’s better to rent or buy. It’s nice to put money towards a long-term investment, but you don’t want to end up with more debt if you have to sell quicker than you anticipated. Here is a calculator from realtor.com.

How much can you afford per month?

Most people try to figure out the total amount of house they can afford ($125K, $150K, $200K, $300K), but instead you should look at how much you can pay per month. Many different factors influence what your mortgage payment will be. Check out the breakdown of those costs here.

How much debt can you take on?

While most people don’t like to mull over their debt, it is definitely something lenders keep their eye on. In the past, some financial institutions would consider people whose debt-to-income ratio (how much they paid per month against loans and credit cards versus how much they make) was up to 42% once the house payment was factored in. The regulations have been tighter in the past five years. You’ll want to consider 36% as the edge of your comfort zone. Click here for a link to Zillow’s debt-to-income ratio calculator.

What does your credit score look like?

Just like your DTI, your credit score will be extremely important to lenders. And as a consumer, you should be very familiar with your credit score to begin with. Monitoring your credit periodically can help you catch errors on any reporting while also making sure you have not fallen prey to identity theft  Keep in mind, you are entitled to one free report each year from Experian, TransUnion, and Equifax through www.annualcreditreport.com and some credit cards will show you your score monthly.

Which area do you want to buy into?

When buying a home, you’ll definitely want to consider it’s potential resale value in the future. Beyond just the size and look of the house, you need to keep in mind: which school district it is zoned to and where it could potentially be re-zoned to, the commute to where most locals work and how long it takes to get out of the community, the home value trend in the area, and the surrounding amenities both in the community and outside of it. Even if some of these factors don’t affect you, it is important to know what future homebuyers may be looking for.

What type of home works for you?

Condos and townhomes may have higher HOA fees, but can require less maintenance than a single-family home. Shared amenities, more security, and location may make a multi-family development more appealing while privacy and more space can make a house more suitable.

Do you want to buy a new or resale home?

Both have their pros and cons (some of which are listed below). Some people enjoy fixing up a home while others prefer to build new. Look at your options and see what you’d be more comfortable with.

ProsCons
NewCan be designed to your liking, may require less maintenance, insurance companies offer discounts for newer homes, new amenities in new build communities, typically more energy efficient, can hire phase inspector during build for added peace of mindLess opportunity to buy more centrally located, can be more expensive, may come with "teething issues"
ResaleOlder homes can have more character, can be more centrally located, may use more durable materials (such as wood), may be cheaper to rehab based on the floorplanMay need extensive fixing up, could have outdated and harmful materials such as asbestos or lead, could have hidden issues from settling, termite damage, or water damage

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