Purchasing a home represents the single largest investment most people will make. As such, the decision to buy should not be taken lightly. It’s too easy to fall in love with a property on first sight only to regret purchasing it years down the road.
The best way to avoid such grief is to make sure you fully understand the implications of buying a particular property before you sign the paperwork. To that end, there are five things to consider.
1. Total Cost of Ownership
The total cost of ownership concept is one that we normally associate with buying a car. However, it also applies to buying a house. The total cost of ownership accounts for all of the money you will spend for as long as you own your home. It begins with the purchase price.
Unfortunately, far too many homeowners never get beyond the purchase price. They don’t realize that the total cost of ownership also includes insurance, property taxes, mortgage interest, and all of the costs associated with maintenance and repairs. Every penny spent on a home goes into the total cost of ownership.
2. Interest Rates and APR
Interest rates are a very important factor when applying for a mortgage. What you might not know is that interest rates and annual percentage rates (APRs) are not the same. The interest rate on a mortgage is simply the extra money you pay for the privilege of borrowing, represented as a percentage of the principal.
The annual percentage rate represents all of the costs associated with a mortgage. It includes interest as well as additional mortgage fees, mortgage points, and so on. This is why APR is higher than the interest rate alone.
3. How a Mortgage Will Be Obtained
Next, it is important to consider how a mortgage will be obtained. You can go directly to banks and credit unions or seek out private lenders. Perhaps a better option is to work with a mortgage broker instead. Mortgage brokers have access to a larger portfolio of products and the ability to give buyers more options.
4. Long-Term Goals
Be sure to consider your long-term goals in relation to what you hope to purchase. For example, a small starter home is ideal for a newly married couple with no children. Any plans to have children within the next couple of years might suggest the need for a larger home. Perhaps it’s worth paying a little more to get an extra bedroom or two. Otherwise, the couple might be left with a home that is too small for a growing family.
5. Property Condition and Upkeep
As you look at houses, close attention to property condition and upkeep. Property condition is the more immediate concern inasmuch as it can influence the purchase price and immediate financial outlay relating to maintenance and repairs. There is no point in buying a money pit.
As for upkeep, consider how much work a particular property will require. Be sure you are prepared to put forth the time and effort to maintain the home you purchase. Otherwise, it’s too easy to become a slave to one’s property.
Buying a home is a major decision with long-term consequences. It is a decision that should be made only after careful consideration of all the implications.