July Monthly Newsletter: Five Financial Factors to Consider Before Buying a Home

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Every spring it’s the same: the snow melts, the birds begin building their nests, the neighborhood children resume their outdoor play and the housing market blooms. Yes, among the budding trees and perennial sprouts you’ll notice “For Sale” signs popping up all over town. Come this time of year, when summer is officially in full swing, the days stretch longer while the average time available houses spend on the market gets shorter.

Perhaps it’s the fresh air or the addition of natural light that makes buying a home so much more attractive from May through August, when an estimated 40% of real estate purchases happen each year according to Housingwire.com. The urge to move while the weather is warm may have you, like many others, hitting open houses each weekend and constantly checking for updated listings on Zillow. Whether you are a first-timer looking to join the mortgage club, a growing family bursting out of their current place or an empty nester set on downsizing, there are many matters to discuss before you sign the mountain of paperwork which entitles you to all the joys and occasional sorrows of ownership.

To help you weigh the pros and cons of a new residence, consider these five financial factors:

Factor One: Time Frame

For most people, a home is the largest purchase they will ever make. Agreeing to decades of payments shouldn’t be taken lightly, particularly if you are the type of person who may want/need to move in a relatively short period of time. Viewing your home buying decision with a long-term lens will help you make a fiscally sound decision.

Ask yourself:

  • Is it likely I could be transferred for work or have a change in my employment situation? If yes, renting may be a better option. It generally takes several years to earn money on your investment, thus moving quickly could be detrimental to your financial health.
  • Do we plan to expand our family? If you plan to have children in the near future, it may make sense to stretch your budget now, avoiding the cost and pain of moving five years later when you’ve outgrown the space.
  • Will this home make sense as I age? If you are searching for a home to take you into retirement and beyond, bear in mind the changes that accompany this life event, including the square footage you’ll require when your kids have moved out and the layout that’ll work well as you advance in years. Not all homes need to be bigger or more expensive than your last.

Factor Two: Location, Location, Location!

The area where you chose to live can impact your bottom line. Take time to investigate property taxes, HOA obligations, special assessments, SID status and other location-specific expenses prior to extending an offer.

Factor Three: New vs. Existing

Regardless if you build or buy, there will be advantages and disadvantages to take into account. New homes can be pricier when you add in the costs of purchasing a lot and interior customization, but you are likely to get more mileage out of structure and appliances. Existing homes generally include window treatments, refrigerators, furnaces and the like, but the age of these components could have you shelling out serious cash within months. Find out which option makes the most sense given your budget, your desired move-in timeline, present market conditions and the availability of laborers in your region.

Factor Four: Type of Mortgage

The majority of buyers will choose to finance their home rather than purchase it outright. Research mortgage options such as length (typically 15 or 30 years) and terms/conditions of the loan. In addition, decide if you’d like a fixed-rate mortgage where your loan remains at the same interest rate for its duration or an adjustable-rate mortgage that will fluctuate over time but could be beneficial in certain economic climates.

Factor Five: Initial and Ongoing Costs

With equity comes great responsibility. The price of ownership doesn’t stop at a down payment and a monthly mortgage check. There are initial costs to plan for such as furnishing your home, renovating rooms, purchasing needed equipment like a lawnmower or snow blower and more. Furthermore, ongoing maintenance will include insurance coverage, as well as preparing for repairs which range from minor upkeep (painting, yearly landscaping, etc.) to major undertakings (replacing windows, roofs, mechanical systems, etc.). Before moving, set aside a fund for emergencies (at least 1% of purchase price) and redo your monthly budget to include continual maintenance ($100 a month is an ideal starting point).

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