If you are considering purchasing a home, understanding the necessary steps can seem daunting. Homeownership is indeed a thrilling prospect, but it also comes with a learning curve. Wondering how much it’ll cost you is one of the earliest questions that may crop up. This is a typical query with no standard answer. Many variables come into play in determining the amount that you will need to save or spend to buy a house. In this article, we will discuss these factors to help you arrive at a practical figure and fulfill your dream of having your own abode.
GET AN IDEA ABOUT LOCAL PROPERTY PRICES:
Begin by exploring home prices in your vicinity. The cost of houses fluctuates drastically depending upon the location. For instance, a 3-bedroom, 2-bathroom house could cost substantially more in California than in Oklahoma. So, decide whether you want to live in an urban area, suburb, or a countryside. Browse list prices in desirable locations to get a sense of your preferences. To reference, the average American home price is $355,852 according to Zillow, whereas Motley Fool recorded a 30% spike in home prices since 2020, taking the average to approximately $428,700. These figures might differ based on sources, but it should give you a decent understanding of the current real estate market.
ESTABLISH YOUR DOWN PAYMENT AMOUNT:
Knowing the amount you intend to put down is crucial when calculating the total needed to buy a house. The common advice is to pay a 20% down payment, however, with spiking property rates, it could seem unaffordable for many. For instance, a 20% down payment on a home priced at $350,000 amounts to $70,000. Although paying a minimum of 20% can save you from paying Private Mortgage Insurance (PMI), and it could result in lower monthly mortgage payments, it’s okay to pay less than 20%. The down payment could be as low as 10% or even 3.5% with an FHA loan. Also, the loan type matters, conventional mortgages necessitate about a 5% down payment. The VA loan for military personnel or USDA loan for rural inhabitants, being government-backed, may require as little as 0% down payment.
EXAMINE YOUR CREDIT SCORE:
Another critical factor is your credit score. Higher credit scores generally lead to lower interest rates, which could save you thousands over your mortgage’s lifespan. Ensure to check your credit score before applying for a mortgage. Consider collaborating with a credit counselor or repair program if your credit history is tarnished by missed payments or delinquency. Building a positive credit history could be done with a secured credit card or credit builder loan.
TAKE STOCK OF YOUR CURRENT DEBT:
Your current debt will also factor into your home-buying budget, especially if you plan to get a mortgage. Lenders usually favor a specific debt-to-income ratio, where your debt payments are low enough to let you manage your mortgage payment. Still, even if a lender approves your mortgage, it’s wise to review your own debt-to-income ratio. Comparing the total of all your monthly payments (including the estimated mortgage) with your revenue will help you gauge your financial health.
If more than half of your income is spent on debts and mortgage, aim to reduce your debt. Construct a plan to clear off high-interest debts like personal loans or car loans and pay down your credit card bills, freeing up more money.
FACTOR IN REPAIR AND MAINTENANCE COSTS:
After paying the down payment and saving for emergencies, ongoing homeownership costs, including maintenance and repairs, must be considered. Experts suggest allocating 1-4% of your property’s value annually for these costs. Open a savings account and contribute regularly to be prepared for these expenses.
IN SUMMARY:
The amount needed to buy a house differs for everyone, hinging on individual circumstances, local property prices, and how much you are comfortable spending on housing monthly. Use these guidelines during your financial preparation and home hunting.
