5 Essential Home-Buying Considerations
By Cheryl Knight
Buying a house is a life-changing process that requires lots of upfront financial planning.
When looking for a home, keep certain factors in mind, including your financial situation, types of available loans, your credit score, the price of the house and your down payment so you can navigate the process smoothly.
Your Financial Situation
In addition to the mortgage payment, you’ll want to factor in expenses like property taxes, homeowners insurance and routine maintenance.
Types of Mortgages
The interest rate on a fixed-rate mortgage stays the same over the life of the loan, with payments divided up into equal amounts that you pay on a monthly basis. The longer the loan term, the less you have to pay each month; however, you’ll likely pay more in interest than you would with a shorter-term loan.
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. For example, a 5/1 ARM has an introductory rate of five years. After that five-year period, the interest rate can change annually. With an ARM, you need to consider how much your monthly payment could increase and your ability to pay if it does go up.
Your Credit Score
It’s still possible to buy a house if you have bad credit. You likely will have to accept a higher interest rate on your mortgage, which could cost you hundreds of dollars extra per month.
If your credit score drops too low, though, you might not qualify for a mortgage at all. Consider improving your credit score first before trying to buy a house.
The Price of the Home
Remember to consider your needs, too. Do you have a new addition to the family and need the room? Have your kids moved out and you want a smaller home?
Also, take a look at the price range of the houses available in the area where you want to buy. Compare the prices you find to your budget and determine what home you can afford.
The Down Payment
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