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Are you Financially Ready to Buy a Home?

     
September 22, 2014  |  Real Estate
Are you Financially Ready to Buy a Home?

With homebuying comes great responsibility. And that folks, is paying a mortgage.

Understanding all the costs entailed in buying and owning a property is paramount in order to determine at the onset if you are now ready to join the ranks of homeowners with the biggest responsibility of being financially ready to purchase, maintain, and keep a home.

What to Consider

Potential buyers are mainly focused on the down payment sometimes forgetting to factor in other costs such as homeowners insurance and the possibility of depreciation. There are also the closing fees, moving costs, repairs if any are needed, and expenses for maintenance of landscape, pool, backyard, and the upkeep of the house. Prior to moving in, there are the purchases of major appliances, not to mention furnishings and decorating accents once you move in.

The list of costs could go on depending on how you want your home to turn out. Renovating a room, for instance building a walk-in closet or a customized work space would entail additional expenses. Same goes for the technology, accessories, and other upgrades that you want to integrate into your home.

What it Takes to be a Homeowner

Once you take charge with having your own home, the leniency of house-keeping must go. The days of calling up the landlord to fix your problems will finally come to an end because you are now accountable for all the upkeep – from malfunctioning appliances to broken heating and air-conditioner, and everything else in between.

 

Can You Afford to Buy? The Determining Factors

1. Property Value. Know what the home is worth by comparing the prices of homes that were recently sold of similar type and size (and other criteria) in the same neighborhood. Your real estate agent can provide you with a Comparative Market Analysis, and this information will help you establish the property value.

2. Type of mortgage loans. As a home buyer, it is a good move to be informed of the process of home buying. Knowledge is power and it will help make your home buying experience less stressful. Mortgage is essential information in purchasing a property.

Review various mortgage loan types and make comparisons of the down payment requirements. Compare it to the money that you have. Depending on the type of mortgage and the property value, a down payment range from three to twenty percent of the property value. Add the Private Mortgage Insurance (PMI), a policy that allows lenders to recover part of their financial losses should a borrower fail to re-pay a loan in full. Mortgage insurance makes it feasible to purchase a home with as little as three percent down payment. Note though that the lower the down, the higher the PMI, which will typically amount to between $40 and $125 a month.

3. Closing Costs. Factor in an estimate of your closing costs, including taxes, recording, inspections, title insurance, prepaid loan interest, points, and financing costs from your real estate agent or mortgage lender. The closing costs are estimated to between two to seven percent of the property value. After you apply for a mortgage, you lender will give you an estimated cost of all these factors.

4. Property Taxes. Expect the possibility of having to set aside monthly payments for property tax (and often insurance) in addition to the monthly mortgage payment. You will find that your average annual tax rate will be about 1.5 percent of the price of your home that you bought it for.

5. Moving cost. Essentially, the more stuff you have, the more expensive it is. Will you hire a moving company to do the legwork for you or will you simply rent a truck? Either way, a budget for moving is a must.

6. Repairs and Maintenance. Prepare funds for repairs and maintenance, which typically consist of the following items and their rates:

  • Electrical systems: $20 to $1,500
  • Plumbing systems: $300 to $5,000
  • Roofing: $1,500 to $5,000
  • Central heating: $1,500 to $3,000
  • Central cooling: $800 to $2,500
  • Structural systems: $1,500 to $3,000
  • Insulation: $800 to $1,500
  • Water seepage: $600 to $5,000

Source: HouseMaster, a home inspection company with 300 franchises nationwide

7. Money out. This is the amount of the down payment and closing costs, which you will need on hand in completing the home buying process.

Plan of Action

Finding out the numbers you need to come up with will help you map out steps to continue, especially if you realize that you’re a bit short of funds. Check with your Realtor or Lender ways to reduce costs or creatively source your down payment. They can help you with options to find out what is available for you and what is suitable for your situation.

Financial literacy as a homebuyer is not to be underestimated. If anything, knowing if you are ready financially to buy a house is the first and major step to do before planning any other related things, like house hunting and applying for a loan. There are Realtors and lenders who would willingly assist you, but you must also know what the whole process entails on your way to being a homeowner. This in itself is an investment – ensuring that all things go smoothly as possible.

 

The Blake Team specializes in working with Buyers & Sellers, foreclosures/HUD, short sales, and luxury properties. We can give you the advantage you need by providing you inventory that is not yet available for other buyers to see.

About the author

The Blake Team is a full-service Real Estate team based in Aurora, Colorado specializing in working with Buyers & Sellers, foreclosures/HUD, short sales, and luxury properties. A team with years of experience and an impressive success rate that made it the No.18 real estate brokerage in the nation, as well as the No.1 Keller Williams agent in Colorado led by CEO & Founder Lisa Blake. The Blake Team is your No. 1 choice for getting your dream home!