Purchasing a home is the most significant financial decision we make in our lifetime. Right from figuring out a budget for the home to why should you consider a realtor, here are the top things you must know before buying a home.
- Work with a trusted realtor
All of us are aware of the fact that realtors get a cut from the sales price of the home which is why many buyers do not like to use the services of the realtor. However, you need to keep in mind that the seller will pay a commission to them and not the buyer. As a buyer, you need to keep in mind that a realtor who represents the seller will not have your interests in mind and would want a high commission. Hence, you need to work with a realtor who works for you and keeps your interest at the forefront. It might take some time but scout the market for a trusted and experienced realtor.
- There is a contract
Remember that the purchase of a house will involve a contract and there will be many papers to sign. These are the standard home buying contracts and there is room for negotiation. If you want time to review the inspection or want to make a purchase subject to approval, you can add it to the deal. You do not have to sign a standard agreement right away.
- The house has more than the paint
Your dream house may have the right number of rooms that you are already planning on changing but you need to remember that it is inexpensive to alter the cosmetic issues but making changes to other areas like bath and kitchen can be costly. You need to focus on all the costs associated with the home and not just the paint. There are times when a lot of us forget that the cost of labor could stretch your budget. This does not mean you give up on the house but you must factor in the costs when choosing the house you want to own.
- Buy what you can afford
What you may be able to afford will be different from what your mortgage company believes you can afford. You may be approved for a mortgage that is many times more than the amount you can afford. If you do not make the right decision here, you could land in trouble. You can afford mortgage payments that are about one-third of the gross annual income. You must consider the cost of insurance and taxes. There are various factors that play a role here including the market, type of mortgage, interest rate, and projected income. You need to be aware of the refinance and reverse mortgage service which allows you to take a new loan to pay off the original mortgage loan. It helps take advantage of the low-interest rates in the market and reduce the monthly payment.
- Do not fixate on the cost
Never make the mistake of buying a house based solely on the purchase price. It is only one aspect of owning a house. There are different costs associated with the home and it includes the insurance cost, real estate taxes, association fees, and more. Based on where you live, the cost could add up. Home improvements will also cost you money and it is best to ask about the extras for other aspects of the house like swimming pools or the cooling systems.
- Do not be carried away by the home mortgage interest deduction
A lot of taxpayers buy a house that costs more than what they can afford by thinking that they will be able to save enough with the interest deduction on a home mortgage. And the savings will make up for it. You need to remember that the interest deduction will be deductible if you itemize it on Schedule A. However, only one-third of taxpayers claim this deduction. Even if you itemize it, you will need to keep in mind that the out of pocket cost will still be more than the savings. One cannot consider the same amount of savings forever. Consider the tenure you will own the house for. The longer you do, the less you will owe in interest. It will build the equity but it also means smaller tax deductions.
If you have made up your mind to purchase a house, you must be aware of these six things. Do not rush the process as it may take sometime before you find the right type of house. Understand the technicalities of the mortgage and then proceed with the purchase. This is a one-time investment you are making and you should not compromise on anything.