We all know how it feels. We tune in to watch a house show on HGTV, circle neighborhoods and pull the for sale flyers, and log on to one of the many real estate sites to browse pictures of homes for hours on end. We imagine ourselves in these homes and we begin to catch it; House Fever.
But as we move from browsing and dreaming to actively looking there are several things to consider before becoming first home buyers in Perth. Here are four:
- Consider how much home to buy. This question is often answered prematurely when a person or couple obtain a “pre-qualification letter”. Most lenders have a simple formula that spits out a number and you, as the potential homebuyer, get an email or letter stating “You have been pre-qualified for up to $XXX,XXX”. This number more times than not represents the absolute most you should consider and the maximum you could likely borrow. It is easy to get the amount and look at dozens of homes at that price point, elevating expectations. It is prudent to consider and aim for a mortgage payment much lower that the lender maximum.
- Consider your mortgage terms. Many homebuyers skip this question altogether. The entire industry from agents to lenders often default into assuming that you will likely choose a 30 yr. fixed rate mortgage. But that isn’t your only option. Over the past few years, 15 yr. and 20 yr. fixed mortgages have increased in popularity. Not only do these loans carry lower interest rates, they also amortize faster, meaning that more principal is paid off each month, building equity for the years ahead. Shorter term loans do mean that the monthly payments are higher, so use a mortgage calculator online as you are considering mortgage terms. For examples and statistics on loans and their expectations, this source has proven informative and accurate: https://qvcredit.sg/
- Consider the Potential Property Taxes. State Property tax rates vary from .28% to 2.29% of the value of your property and are often higher depending on the local taxes. Although real estate agents may know the tax rates in the area, most will not readily break down the differences in cost. Living just across a city line can mean$1,000 or more annually for a similar house. Research the tax rates in your area and consider the municipal rates when choosing your exact location.
- Consider the HOA Fees. There are over 350,000 home owner associations in the United States. If you live in a city or suburban area, odds are an HOA is on the horizon. Association fees can range from a few dollars all the way up to several hundred dollars each month. It is important to factor the potential HOA fee into your mortgage calculation and be aware of the impact it will have on your monthly budget.
That moment you choose to buy a home can be both frightening and exciting. For many, the home is both the largest asset ever owned and largest debt ever owed.
Balancing the fever of those buying a home in Minnesota with the big picture of their financial future is crucial to making a wise home purchase.