Purchasing a house is exciting, but it can also be an intimidating, complex process. Not only is it a significant financial investment, but it’s also choosing where you’ll spend your free time for potentially years to come.
Before you begin the process, you need the right information that will help you make the best decisions. If you’re ready to start your house hunt, here are four things you must consider before making an offer.
Of course, there’s the list price of the home itself. But calculating the cost is more complicated than that. When in the process of buying a house, one of the most vital things to consider is the overall price of the house—both at closing and month-to-month. This includes figuring out the mortgage, insurance premiums, property taxes, utilities, and other miscellaneous costs.
For example, you may have a sizable down payment saved up, but the monthly payments on a house outside your budget may stretch your finances too thin. Property taxes can be a significant portion of your costs depending on the value of the house and where the house is located. A good rule of thumb is to spend no more than ⅓ of your gross income on housing costs.
You’ll also have to think about insurance. Homeowner’s insurance is often required for a lender to agree to finance the purchase of a house. Consider the scope of homeowner insurance policies, such as their overall costs, types of coverage, and liability coverage. Like property taxes, the extent of the insurance can make a significant impact on your overall costs.
Even if you can make the down payment on your dream home, make sure you can afford to live there before closing the deal.
2. Resale Value
Most Americans don’t live in the same house forever. Considering your personal needs is important when buying a house, but so is considering the wants and needs of another buyer. When the time comes to move out of your house, you want to be sure that it can sell quickly.
Would another buyer like and appreciate the house you’re buying? You may like the nontraditional floor plan, but would someone else? Think about resale value factors such as the house’s location, size, layout, and condition when you’re considering buying a house in addition to your personal wants and needs.
Every house needs repairs eventually, but some homeowners envision massive makeovers once they have the keys. While renovating an older house can significantly increase its resale value, you need to be careful not to bite off more than you can chew. You should know a ballpark figure of the cost for renovation before buying the house so you stay within your budget.
Think about factors like rooms to be renovated, different kinds of renovations, labor, and location. Making renovations can increase the property value of the house, which can consequently improve the return on investment (ROI) should you decide to sell the house in the future.
4. Potential to Rent
Purchasing a home can also be a great investment decision. You can earn a supplemental income from renting the house to tenants. Whether you choose to rent out the house presently or in the future, considering the potential to rent is necessary. Does it have a spare room or apartment? Could you add one without needing major renovations?
If you chose to rent the entire house, are the location and market favorable? Even if you don’t plan on renting a home within your first year or two of owning it, consider these questions now if renting may ever be in your future.
When buying a house, there are a variety of factors to consider to ensure that you’re making the best possible decisions. The real estate market moves quickly, but don’t feel pressured into making a decision without first considering your personal finances and long-term goals.