Buying a home? In addition to the new 2018 tax laws, these other financial considerations could affect your total cost.
Buying a home in early 2018 could be the best financial decision you make all year. Low interest rates and slowly climbing home prices could make it the perfect time for you to jump into the real estate market. However, in addition to considering the base price, the down payment and the interest rate you will need to make your loan affordable, there are several other things you will be wise to consider before you take the plunge.
The DTI: The Debt-to-Income ratio—your monthly expenses compared to your income—will assist in determining the approval of your loan. You and your family also should consider your ability to keep your current lifestyle when you become home owners. The DTI gives you better idea of what you can spend on a house payment without having to cut lots of corners for the next 10 years. You can find several online calculators and forms that will calculate your DTI based on the figures you input.
Buy property you can afford now, not later. Even if you’re almost certain you’ll be earning more in a year or two, there also might be circumstances that increase the other expenses in your life. Children, schools, a new car, medical bills and home upkeep can be substantial costs. Be sure there will be room in your budget to live life the way you’ve planned.
Don’t underestimate the costs of purchase. In addition to the price of the home, there are many other costs involved,. Ask friends who have gone through the home-buying process. It’s unlikely they will say that it cost less than they planned for. It’s safer to understand and over-estimate those additional costs.
Some of the fees and services you can expect to pay for include the following:
- Mortgage application fee: Lenders charge a fee for a mortgage application. The price varies, but can be several hundred dollars.
- Home inspection: An inspection finds any undisclosed problems with the house before purchase. This protects you, the buyer, and gives the owner time to correct problems tied to making a sale. You can expect to pay several hundred dollars for the inspection.
- Closing costs (title, appraisal and origination fees; interest due and escrow deposits): The paperwork for a home sale involves agencies at the private and government level. Your real estate agent should inform you each step of the way what you’ll be signing and paying for. You can ask for at a list of how much total closing costs will be before the big event. Closing usually runs about 2 to 3 percent of the cost of the house.
- Homeowner’s Insurance: Coverage provided by a 3rd party agency to protect your home will be part of your total monthly payment, required and disbursed by your lender from your escrow deposits.
- Mortgage Insurance: Coverage for the lender to protect against loan default may be a portion of your total monthly payment, also disbursed by your lender from your escrow deposits.
- Property Taxes: As a homeowner, you will make an annual tax payment to the county until your principle is below a certain percentage of the value of your home. This is a part of your total monthly payment and is disbursed through your escrow. Some tax may be owed upon closing.
Contact your real estate agent and loan officer to learn more details about the initial and ongoing costs of homeownership.