3 Things You Need Before Buying Your First Residential Property
Buying a house isn’t as simple as taking out a loan and consulting a real estate agent about your options. In fact, Time Magazine estimates that it may take up at least three months since this complex process also involves paperwork from other professionals such as a loan officer, home inspector, and title attorney. However, there are things you can do to help speed up the process and avoid unpleasant surprises along the way since you know what to expect. A few examples are listing down your non-negotiables and checking your credit score, but here are more things you should have before you set out to buy your first home:
A good debt-to-income ratio
You may be surprised that having a stable job and consistently paying your debts on time may still not be enough to get you approved for a mortgage. While a credit score is important, it’s only one part of what lenders look at. It’s equally important to pay attention to your debt-to-income (DTI) ratio, which Ally explains is a percentage showing how much of your gross monthly income goes to paying your monthly debts, such as student loans and car payments. Lenders use the DTI to determine how much you can still afford to dedicate towards a mortgage.
The ideal DTI is 36%, though some lenders also accept ratios of 43% to 57%. You can lower this by increasing your income and using the 50/30/20 rule when budgeting. It’s important for you to take control of your finances now so you can achieve your goals in a timely manner — in this case, buying a house.
Homeowners insurance is a contract that protects your home, lot, and personal property in the house. It covers homeowners in case their home gets damaged such as through fire, theft, and even vandalism in line with what is detailed in the insurance policy. Leading financial advice platform AskMoney highlights in one of its posts that a homeowners insurance policy also covers different liabilities. This includes damage or injury to people or their property. Liability coverage can sometimes also extend to people and pets when they’re outside the home as well.
Homeowners’ insurance costs an average of about $1,500 per year and differs depending on where you live and the policies you chose. It’s ideal to get your insurance the moment your loan goes into effect. But even if you’re done paying the mortgage, you should continue carrying insurance to financially protect you if something happens to your property.
An understanding of hidden costs
You might have worked up a budget for the house you want and feel like you can also set aside money monthly for mortgage payments. However, buying a new house also comes with other fees you may not have taken into account. For instance, you’ll need to hire movers to get your things to your new place. This costs an average of $1,366 and can vary depending on rental truck size, how far you’re traveling, and other such factors. Your new home may also lack furnishings, and if you don’t want to bring your old furniture and decorations, then buying new ones can also cost a lot. Knowing the hidden costs of buying a new home helps you create a more comprehensive budget so you can find a house that’s really in your price range. House hunting is an exciting endeavor. But it’s important to be aware of the things you need to know and have to make the process seamless and easy. Check out our real estate category right here on Flip Updates for even more helpful articles to guide you on your forays into residential properties.