Rent v Buy – Preparing for Homeownership
If you have made the decision that homeownership is for you based upon your unique situation and your lifestyle, HHHunt recommends that you:
1. If you have never purchased a home, attend a home-buying or mortgage seminar. These sessions are offered free by many mortgage brokers and realtors to educate you about the process.
2. Find out your credit rating. Is it good enough to qualify for favorable terms for a mortgage?
3. Review your financial position.
(a) Do you have a down payment? This should be 20% of the
purchase price to avoid private mortgage insurance.
(b) Do you have enough available cash to pay the closing costs? This is typically $3000-$5000 for a new loan.
(c) What is the maximum payment that you can afford? This figure should include the mortgage, insurance and taxes as well as Homeowner or Condo Association dues, at minimum.
(d) Are you prepared for higher utility costs? Average utility bills in a house are sometimes double what you would pay in an apartment.
(e) Do you have enough extra funds available to furnish and decorate your new home or will you have to go into debt to afford these items? If so, incorporate the additional payments into your monthly budget.
(f) Are you financially prepared to pay around 1% of the purchase price in yearly maintenance fees. For a $200,000 home, this would equate to approximately $2000 per year.
(g) Are you prepared to stay in the home for at least 7 years so that you succeed in building some equity before selling the house and paying realtor fees (usually 6% of the sales price). Very little equity is built in the first few years and what is built, is typically negated by mortgage interest, insurance and taxes, and the additional costs associated with owning the home.
4. Pre-qualify or get pre-approved for a mortgage before beginning the search for your new home. Often, sellers will be more willing to accept the offer of someone who has secured financing rather than one who has not.
5. Narrow down the area, the type of house that you want and make a wish list. Do you want a two-story or ranch house, a condo or a house with a yard? Is a garage important? A fireplace?
6. Find a realtor in your area that you trust. Shop around and solicit referrals from friends and family.
7. Be patient. The search for a home can be stressful and there are many choices in the market. Make sure that the home you buy is the right one because you will be making a long-term commitment.
8. Once you have found a home to purchase, find a reputable home inspector. This inspection is to find any repairs, structural issues and/or safety problems that may exist. In addition, a termite inspection and, in some areas, a radon inspection should be performed.
Be sure that the inspection is comprehensive and don’t be afraid to ask for repairs from the seller, this is the only chance that you will have! Once you close on the home, the expense of any repairs will be all yours.