10 Factors to Consider Before Purchasing a House This Year
Finance

10 Factors to Consider Before Purchasing a House This Year

Weekly Wealth Staff
Nov 22, 2022

With mortgage rates at an all-time low and the pandemic restricting many people to their homes, the past year was perfect for those looking to become first-time homeowners. However, prices have skyrocketed, and the market is competitive in nearly every city.

You may wonder if now is still a good time to buy a house with the current state of the housing market. Although each situation is unique, there are some general questions you can ask yourself before beginning your home search.

Whether this is your first time buying a house or you're a seasoned pro, understanding the new landscape of real estate will help guide your decision-making process.

10 Factors to Consider Before Buying a House

Although it has typically been viewed as safe, real estate is now being put to the test by recessions and other unforeseen disasters. Would-be homeowners and seasoned investors are beginning to think twice about investing in property.

Purchasing a house is a big decision that should not be taken lightly. There are a lot of factors to consider before diving in headfirst.

Here are important things to consider before buying a house:

1. Financial Stability

Don't purchase a house unless you can sustain your life in it for at least five years. Before deciding to buy, evaluate whether or not the property will fit your lifestyle for the next few years.

Always be prepared for the unexpected. Aside from ensuring enough space for your family, you should also check if you can handle mortgage payments in the long run.

Buying a house is a great way to take care of your housing needs. If you're uncertain of your job stability, continue renting until you know you can stay put for an extended period.

2. Budget

"Can I afford a house?" It might appear to be an obvious question, but it's one that many buyers struggle with. Owning a home means you're responsible for more than the down payment. Home expenses include closing costs, realtor fees, and monthly mortgage payments.

You must also budget for general maintenance, insurance premiums, property taxes, and other recurring expenses that renters typically don't have to think about.

If meeting your mortgage would be difficult, the property is likely out of your budget. Look for something more affordable or save up more money for a larger down payment before making an offer.

3. Location

Location is undoubtedly significant when selling or buying property. As the famous saying in real estate goes, "Location, location, location." It's essential to carefully select the neighborhood you want to be a part of. While "good location" can be subjective, there are objective measures of a home's value.

Here are six factors to keep in mind when finding the best place to live:

  • Amenities
  • Interior and Exterior
  • Development
  • Lot Size
  • Proximity to Community
  • Neighborhood

Homebuyers usually prioritize convenience, so it's important to scout for properties near grocery stores, dry cleaners, and entertainment. Also, think about the proximity of roads and public transportation options. Check if there are near bus stops, subway stations, and public bike-share locations.

4. Current Property

Are you considering moving because of the attractive prices? Remember that almost every other house has similarly gone up in value. You could end up costing yourself more money and time if you downsize without a plan.

Selling your home first could be the best move if you want to buy a new property and have the financial ability to do so. However, there are some potential drawbacks as well.

Pros

  • You can determine how much money you have.
  • You’ll have funds for your next purchase.
  • You don't need to take out a bridging loan.
  • You have the cash to offer upfront.
  • You can wait for the best possible price.
  • You have fewer things to worry about.

Cons

  • You can be stuck renting or living with family/friends until further notice.
  • Property prices could go up.
  • You might end up paying rent.
  • You might settle for less.
  • You'll probably have to move twice.

Should you buy or sell first? It all boils down to your risk tolerances and the real estate market when you make your decision.

5. Short- And Long-Term Plans

Plans may change unexpectedly, and there is no such thing as a permanent home. You don't want to buy any old house just because it's available on the market. If you're young and planning to start a family soon, contemplate plans when looking for homes.

Find houses that have enough space to accommodate your current goals. It would be a waste of money to purchase a large home if you are nearing retirement and intend to downsize.

6. Mortgage Qualification

Though mortgage rates are currently at an all-time low, this doesn't mean it's easier to get approved for a loan. As housing prices increase, most lenders have raised their borrowing requirements. So now, not only do you need a down payment, but you also have to meet stricter financial qualifications.

Despite what some people think, securing a mortgage shouldn't be a cakewalk. After all, when they take out a loan from the bank, they're essentially entrusting you with a large sum of their money and expect you to return it in full after several years.

Before approving your loan request, lenders need to know that you will repay the borrowed amount. Use these metrics to determine if you'll qualify for a mortgage.

7. Credit Score

According to VantageScore®, the average credit score in the United States is 698 as of April 2021. A high credit score is essential when applying for a mortgage. The lowest score you can have and still be eligible for is 580, but most lenders prefer to see a 620 or higher.

If you want the best terms, try to aim for a higher credit score (720 to 740). Some lenders even prefer to see scores in the 800s for the best offers. Future homeowners spend more or have higher interest rates if they have a low credit score.

8. Down Payment

Deciding how much money to put down in a house is no small feat. It's one of the most important decisions you'll make when buying a home, and there's a lot to consider. The size of your down payment will affect the mortgage you qualify for. It's crucial to know how much money you have for a down payment before you start house hunting.

9. Other Assets

Although you may not initially qualify for a loan based on your income, some lenders may consider other assets, such as retirement funds or taxable investments. Be sure to communicate with potential lenders that you would like them to include these assets during the qualification process.

Lenders judge your worthiness by how likely you are to make regular and on-time mortgage payments. If you want the best terms or even just approval, show lenders that you're capable of paying monthly fees.

10. Income

The most important thing to consider before buying a house is your income. It will determine not only what type of house you can afford and if you can afford it all together.

To know how much of your income you should put towards your mortgage each month, try using the 28/36 rule. Based on this rule, your mortgage payment shouldn’t be more than 28% of your monthly pre-tax income and 36% of your total debt.

The 28/36 rule is also known as the debt-to-income (DTI) ratio. Your debt-to-income ratio is one of the aspects lenders investigate when considering you for a loan. This number lets them know if your income can handle the new payments and debts.

To verify your income and form this ratio, they'll look at car payments, existing student loans, credit card balances, and even child support obligations. The lender will assess your monthly car payments, credit card balances, child support obligations, and other factors to calculate your debt-to-income ratio.

Start Your Search Now!

Buying a house is a huge accomplishment. However, there are a few things you need to take into consideration before picking out paint colors and planning your housewarming party.

Considering these factors before beginning your home search will save you time, energy, and heartache in the long run. Start your search now!

© weeklywealth.com. All rights reserved.