5 Important Questions When Choosing Your First Home

Friday, May 16 at 11:10 AM
Category: Personal Finance

Moving into your own place can be exciting and frightening at the same time. Consider the following questions when choosing your own home.

  1. How much money do you have saved up? Start with an evaluation of your financial health. Figure out how much money you have for a down payment or deposit on a rental. Down payments are typically 5 to 20 percent of the price of the home. Don’t forget, when buying a house you also need earnest money and money for closing costs. Security deposits on rentals are usually about one month of rent and more if you have a pet. But be sure to keep enough in savings for an emergency fund. It’s a good idea to have three to six months of living expenses to cover unexpected costs.
  2. How much debt do you have? Consider all of your current and expected financial obligations like your car payment and insurance, credit card debt and student loans. Make sure you will be able to make all the payments in addition to the cost of your new home. Aim to keep total rent or mortgage payments plus utilities to less than 25 to 30 percent of your gross monthly income. Recent regulatory changes limit debt to income (DTI) ratio on most loans to 43 percent.
  3. What is your credit score? A high credit score indicates strong creditworthiness. Both renters and homebuyers can expect to have their credit history examined. A low credit score can keep you from qualifying for the rental you want or a low interest rate on your mortgage loan. If your credit score is low, you may want to delay moving into a new home and take steps to raise your score. For tips on improving your credit score, visit aba.com/consumers.*
  4. Have you factored in all the costs? Create a hypothetical budget for your new home. Find the average cost of utilities in your area, factor in gas, electricity, water and cable. Find out if you will have to pay for parking or trash pickup. Consider the cost of yard maintenance and other basic maintenance costs like replacing the air filter every three months. If you are planning to buy a home, factor in real estate taxes, mortgage insurance and possibly a home owner association fee. Renters should consider the cost of rental insurance.
  5. How long will you stay? Generally, the longer you plan to live someplace, the more it makes sense to buy. Over time, you can build equity in your home. On the other hand, renters have greater flexibility to move and fewer maintenance costs. Carefully consider your current life and work situation and think about how long you want to stay in your new home.

Conclusion
Whether you rent or buy a home you need to think through savings, debt, costs, credit score and length of stay. Looking for additional resources to help you with your house hunt? Check out our Pinterest board for home buying tips.* The more informed you are the better decisions you can make.

Article courtesy of the
American Bankers Association.*

Links marked with * go to a third-party site not operated or endorsed by Arvest Bank, an FDIC-insured institution.

 

Tags: Financial Education, Home Loans, Mortgage
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