You’ve saved your money, you’ve paid off all your high-interest credit cards, and you’re ready to buy a home. Congratulations! Becoming a homeowner is an exciting time in anyone’s life. But the process of buying a home can also be daunting at times since there are many legal papers that need to be signed and fees that need to be paid.
Before starting the process of becoming a new homeowner, make sure you understand what needs to happen from beginning to end. Here are seven things you need to know before buying a home:
1. You Will Need a Down Payment
The most important thing to understand before buying a home is that you will need enough money saved up for a down payment. A typical down payment for most homeowners is 20% of the purchase price.
If you can save more than that, it will be helpful when negotiating with the seller. For example, if your desired property costs $200,000 but you have enough money saved for a down payment of 30%, then you could offer the asking price of $180,000 to get them to lower their selling cost.
2. You Will Pay Closing Fees
Once an offer has been made on the property and accepted by both parties, there are usually two closing dates scheduled — one for when you will make the down payment and one for when you will make full payment.
It is important to check with your agent (or the seller’s agent) about what fees you may be charged on closing day. This can give you a heads up about what sort of checks need to be written out and how much money should be available to avoid costly overdraft fees at your bank.
3. You Will Need Homeowners Insurance
Once you have purchased a home and made your down payment, you will be provided with an owner’s policy document. This is the homeowner’s insurance for the property.
The typical cost of homeowners insurance is $400 — $1,000 per year, depending on your location and the home’s value.
4. You Will Need to Pay Property Taxes
One of the most significant expenses you are likely to have as a homeowner is property taxes, especially if the home that you buy has a higher market value than what you sold your previous one for.
Typically, this amount will be around 1% — 3% of the total market value of the home, depending on how much it is worth. This means that if you bought a house for $200,000, expect to pay between $2,000 and $6,000 per year in property taxes alone.
5. Mortgage Payments are Necessary
If you have not already obtained a mortgage before purchasing your new home, then this is another huge financial commitment you will be taking on.
Although your mortgage may look different from someone else’s since different loan types are offered by trusted mortgage companies.
You will need to understand all the terms and conditions associated with your mortgage so that you can budget properly and pay it off as soon as possible.
6. Property Taxes & Insurance Go Up Over Time
The first cost increase that most homeowners don’t anticipate is property taxes increase as the value of their home goes up or as it gets older. Not only this, but homeowners insurance premiums also tend to rise over time due to changes in local crime rates and other factors that are not under the homeowner’s control.
If you plan to stay in this property long-term, it is best to factor these types of yearly increases into your budget.
7. It Takes Time to Sell a Home
When selling a home, especially if it has been in your family for several generations, there is no telling how long it will take before someone makes an offer or even expresses interest in looking at the property.
This means that you cannot count on selling your home and making a profit immediately after purchase. Studies have shown that most buyers typically have to wait around six months before selling their home, and the longer you have it on the market, the more likely you are to suffer from a loss.
Remember that your realtor is not obligated to tell you if they sell the property, so it’s best to ask them yourself how many days it has been since you placed your sign in the yard.
Although buying a home is an important goal for most people, it can be tough to achieve with all the new responsibilities of owning property. Once you’re ready to buy your first house, there are seven key things that you need to know in advance before signing on the dotted line.