“The American Dream is that dream of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement.” – James Truslow Adams, “The Epic of America”
Every American, natural-born or naturalized, believes in the American dream. Part of that dream includes owning a piece of land and building a home, white picket fence and all. Many of us work for years to make the dream a reality – only to find that, while it may be rewarding, it does require a strong backbone and a huge monetary effort to keep the dream of home ownership alive.
According to the figures from Zillow in 2017, as much as 48% of the entire housing market view their homes as a personal reflection of themselves while 52% consider it a financial investment. This is a compelling reason why we should be well informed about everything that may impact them when it comes to buying and owning a home.
Here are a few important points you will have to consider:
Don’t Max Out Your Loan
Your mortgage company will likely give you the maximum amount they think you can afford. But what looks “doable” on paper may turn out to be a nightmare in the making once you determine that your finances look better on paper than they actually are given your lifestyle. We’d advise that you err more on the side of caution and buy a house that does more than simply make you happy – buy one that gives you a comfortable enough cushion if you were to unexpectedly experience a change in income. Aim to budget, and pay no more than between 28% to 30% of your gross monthly income on your housing related expenses, i.e., your mortgage, insurance and taxes.
Keep in mind that monthly house-related finances will involve more than just the principal plus interest payments. More realistically, you’ll also need to integrate homeowner’s insurance, property taxes, utilities, homeowner’s association fees and upfront closing costs of up to 5% of the home purchase.
Get a Home in a Good School District
When looking for a new home, it’ll just make good sense as a prospective homebuyer to want to ensure that you’re buying into an area where there are great schools. Even if you don’t have kids or don’t plan to, homes in highly desirable school districts will always be more likely to command premium prices come resale time. Investing in a home with property values that are bound to rise over time will increase your chances of selling your home quickly, thanks to new homebuyers looking in neighborhoods with great schools.
A 20% Down Payment Isn’t Absolutely Necessary
A 20% down payment is the ideal amount to save up for your initial payout, but isn’t a hard and fast requirement to purchase a home. If you can’t pay the 20% in full right off, you can opt for Private Mortgage Insurance (PMI). This is an option in which you get to pay 1% to 2% of your home’s value annually in monthly payments until you have 20% equity in your home. With today’s low mortgage rates, monthly mortgage payments are now often lower than a monthly rental payment in a lot of markets. Statistics show that just a little over a third of first-time homebuyers can actually afford a 20% down payment while nearly a third can manage between 3% to 9%.
No Renovations Plans Yet? Hire a Contractor Anyway.
Before you finalize your home purchase, have a home inspector come in to assess what fixes need to be made and obtain a corresponding estimate from a building contractor for those repairs. Don’t immediately accept the credits for repairs offered by your seller’s agent until you have a quote in hand to help you better negotiate the cost of the repairs.
Hold Off on Opening or Shutting Down Any Lines of Credit
During the home buying process, you want to ensure that your credit ratings don’t change and put your credit approvals at risk. Applying for a new credit card at this time could impact on your debt-to-income ratio and could in turn adversely affect your home loan.
On the other hand, you should also hold off on closing unused accounts. Doing so could also bring down your credit score due to increased utilization percentages for your remaining open cards.
Find the Best Mortgage Rate: Shop Around
Take the time to compare mortgage rates offered by the different banks before settling on the one with the best offer. Even a half a percentage point in your mortgage rate can add up to thousands of dollars over your loan’s entire lifetime. Take time to monitor mortgage rates as well as they change daily.
Neighborhood Development and Building Prospects
No man is an island. That’s true for your home, too. While you’re negotiating for your property, you also want to keep an eye on the neighborhood. The local planning office is a great resource for information on future development in your area. Is there a playground in the works? That could be a boon for you if you’ve got active young kids, but not so great if all you want to do is to write your memoirs in peace and quiet. Is a park with walking trails around a man-made lake in the immediate plans for your neighborhood? What about a mall with a plethora of shops to indulge your love for retail therapy? Or, maybe, is a new hotel that could increase tourism and boost property values being built?
Even empty land nearby is worth exploring. Perhaps, you’ll want to buy more acreage for yourself or want to buy into a protected area, where you can be sure the land and nature will always be a part of your landscape.
Being Your Own Landlord
A leaking roof, peeling paint, damaged windows – all issues that will need to be addressed through regular repairs and maintenance. These are problems that you will need to anticipate and be willing to correct. Most budgets for home repairs and maintenance will run to some 1% to 4% of your home’s value annually.
Anything damaged during a storm or stolen during a robbery will pretty much be covered by your homeowners insurance policy, but also make sure to get a home warranty. A warranty plan is designed to fix problems arising from regular wear and tear, or to credit the buyer for any replacements needed. Despite these potential issues, you’ll get the pleasure of owning your own home and fulfilling your American dream.
Mike Curcio is one of the owners of CMS Roofing. Alongside founding the company with Gary DuVall in 2002, he has more than 20 years of experience in the roofing industry. In his free time, he enjoys sports, spending time with his family and writing the company blog.