Buying a home can be a long, expensive process, and one that should not be taken lightly. Since purchasing a house is one of the most important financial decisions you will ever make, asking yourself a few questions and evaluating your situation can make the process run a bit more smoothly.
Before you contact a realtor or start searching for potential homes on the internet, an important question needs to be answered: is a mortgage right for you? Here are a few points to consider before you dive into the housing market:
Where am I financially?
Assess your financial situation thoroughly before considering a mortgage. Will you have enough money and startup cash to handle a mortgage? Or is your income more suited to renting for a while longer? You should have the resources to make a down payment, monthly mortgage payments, insurance, property taxes, closing costs, and basic living expenses. Add in the costs of moving, painting, appliances, yard work, and small renovations – these are things you don’t usually have to pay for in an apartment or rental property. Ask a reputable mortgage loan officer for some insight on your situation if you’re unsure.
How much money am I willing or able to offer as a down payment?
You can get into a home with less than 20% cash down – however, you will have to pay for private mortgage insurance, which is an added cost. Make sure you investigate private mortgage insurance and fully understand the terms and conditions. Also, it is reasonable to assume 3-5% of the purchase price will be needed for closing costs, in addition to cash for property taxes, escrow, and other immediate costs.
Am I comfortable staying in one place for a length of time?
Buying a home is a commitment, unlike signing a year-long lease. Owning a home costs a lot of money up front, and it may not be worth it if you’re planning on moving cross country in two years. Think about why you want to buy a home – if the reason is “equity,” the market is too volatile nowadays to gamble on the financial gains of owning a home. People aspire to be homeowners because they like living in something they own, or prefer to stay in a certain neighborhood. They may need more space for a growing family. All of these are valid reasons to look into getting a mortgage.
If you find that a mortgage is right for you, the next step is to get pre-approved. Ask your mortgage lender about rates and terms, closing costs, and other associated fees up front so you don’t get caught off guard when you’re further along in the process. Also, you will be asked to produce a lot of documentation – lenders want to be certain you will be able to handle the financial commitment of a mortgage.
The home-buying process is much more complicated than it was before the housing bubble burst, so make sure you fully understand everything involved before making a decision. Buying a house is an incredible undertaking, but proper preparation can help ensure you end up a happy, satisfied homeowner.
By Michael Poulos, President/CEO of Michigan First Credit Union