Ready to become a homeowner? Buying a home may be the largest purchase you’ll ever make. Before you start house hunting, it’s important to understand how owning a home could impact your finances.
Buying a home can be a smart choice for many people, but before you select a real estate agent, consider the following:
- Down Payments – A down payment is what you initially pay for the house, while the rest of the payment comes from your mortgage. This large initial investment includes the down payment plus closing costs, which total at least 3 percent of the home’s purchase price. Although the minimum down payment varies depending on the buyer, making a down payment of 20 percent exempts you from needing to buy private mortgage insurance (PMI), which protects the bank.
- Mortgage Payments – Monthly mortgage payments are not comparable to monthly rent payments. Even if the monthly payment amounts are similar, owning a home means that you’ll also be responsible for paying taxes, homeowner’s insurance, renovations and repairs, utilities and other types of fees typically covered by a landlord.
- Leasing a Home – If you are only looking to stay in a home for a specific period of time, consider leasing a home through a contractual agreement with the owner. Leases are typically for six to 12 months, but can be set for any length of time specified in the agreement. Leases are longer-term and more strictly defined than rental agreements. While rental agreement terms can change monthly, lease contracts can only be changed once the term of the lease is up.
- Renting vs. Buying – To determine whether renting or buying is better for your needs, consider how much you are willing to invest in a property. Renting a house involves a lease where the tenant pays rent to occupy the property, and it typically involves periodic payments. If tenants have a contractual agreement to rent over a period of time, they sign a lease. Renters are not always responsible for the maintenance and upkeep of a home, while homeowners are responsible for appliances, repairs and other utilities. The benefits of buying a home will also shift as the real estate market changes.