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  • Alexander Moncastro

How to ensure a safe and secure purchase and ownership of a home?

Owning a home can be a bit stressful financially or emotionally, and if you’re not financially ready it can have devastating effects.

For example, if you drain your savings to buy a home and stretch your budget to make payments, and at certain point in time you fail because of job loss or other circumstances, this can negatively reflect on your budget and credit history for many years to come.

Owning a home takes considerable money, you have to factor in your mortgage, property taxes, insurance, utilities, maintenance and other costs associated with owning a home.

Although being a homeowner, there are many benefits and can have a great impact on your finances overall. Our biggest advice to first-time home buyers or homeowners is not to look at this as a ‘wealth-building’ strategy only.

This is where you are going to live, and this is the place where you and your family will build memories. Therefore, we consider that owning a home safely financially and emotionally will lead to a happier life and more cherished moments.

Here are 10 suggestions to keep in mind when buying or owning a home

1. Make a decision to become a homeowner.

First and most important step is to decide to own a home. For someone owning a home is not an option and they feel good renting, and this is totally normal. Others might have a very flexible job as military or medical personal for instance, and if you tend to move around often, owning a home can equate to spending a lot of money (on broker’s fees, closing costs, taxes and other expenses) that you don’t have to.

Once you have made your decision either this is because you want to own your dream home, provide great experience to those who live with you, or it is about to start building wealth, you own the decision.

2. Choose the type of Home Will Best Suite Your Needs?

You will have to choose what type of property will help you reach your homeownership goal. This can be a single-family home, a multi-family, a condo, or other, each type has its pros and cons.

Perhaps you are making the biggest purchase of your life, there is a lot of flexibility in picking up your criteria and at the same time you might want to keep your needs and wants as closely as possible. Make your call on features like size and neighborhood, bedrooms and bathrooms, kitchen, with or without a fireplace, size of the garage or the back yard.

Just get to know what exactly you need, not always a bigger home is better home or what you need, even if you get financing for.

3. Strengthen your financial and crediting health

Think about your income level and your affordability. Having a high income may not be enough to get a home financed, except if the home is going to be a cash purchase.

Pay close attention on your savings and your liabilities like credit cards’ balance, car loan payments, instalment loans, other payments, leases, or subscriptions.

Also, credit history is another key factor in financing a home, as better score you have as better interest you can qualify for. But after 720-750 credit score points usually doesn’t really a huge difference in your mortgage loan terms.

Make sure you do not overleverage for a home you may not need, and do not set yourself in the situation with extra fina0ncial liability. Experts advise that borrowers buy a home well within their budget. Dual-income couples might consider getting a mortgage that would still be affordable under one income. This gives you room in your budget if someone loses their job.

Opting to play safe with a lower housing expense is more reasonable and look for a home that have opportunities to increase equity and the overall value.

4. Get a professional guidance through the homebuying process.

By working with a reputable lender and real estate broker, you will get a guidance and their expertise in their field, both are your educational resource.

The lender will bright out your way of which type of the loan will best comply with your strategy, how to stay safe not to overleverage, and how you can keep saving down the road.

A good real estate agent’s expertise can protect you from any pitfalls that you might encounter during the process. He or she will bring up the pros and cons of the area, location, property, and any issues that may arise along those.

5. What to pay attention on at the time of buying a home.

The first real estate rule to buy a home is the location or the area you are buying in. Regarding the area is important to know if the property is not in a proximity to a large farm, a compost plant, or if it is not located in a flooding zone, or even sometimes it could be in the area where developments are planned. Also, location is not less important, is it close to high tension power lines, a freeway, a railroad, a lake, a river, is the specific property a waterfront, or it has breathtaking views, and so on.

When it gets down to a specific property be aware of items like foundation issues, old or damaged roof, old or malfunctioning HVAC system, galvanized piping, outdated electrical panels, old or malfunctioning water heater and appliances, insulation, and others. These are the costliest fixes that you might encounter even since the first year of owning. A good solution can be a home warranty that might get very handy especially in the first years of ownership.

6. Obviously, reserves are important when you own a home.

You’ve signed the papers and paid the movers, and the new place is starting to feel like home. And now as we already spoke with homeownership comes major unexpected expenses, starting an emergency fund for your home should be a must to not be caught off guard when these costs inevitably arise.

As certain as you are in your health, job security, economy, other factors, things always happen. And some shifting in your income may make a big impact on your home ownership. The easiest way to feel more certain is to have enough reserves to survive the turbulence. And based on your risk tolerance it can be as low as one month of your expenses in reserves.

My opinion is to have somewhere between 3 and 6 months in savings of your total monthly household spendings including home mortgage or the amount equal 3 to 6 months of property taxes, insurance and dues if owned free and clear. Also make sure to include all other expenses as car related costs, health, food, clothing, school, pet’s care, subscriptions, and anything else you are spending money on.

7. Proper budgeting, saving, and calculating future expenses.

We all know that a fixed rate means that monthly payment won’t change for the whole loan term, in the scenario when you have a mortgage on your home. Though, some of the other costs associated with owning a home as taxes, insurance and other dues, might stay fixed for some time but eventually will be increasing as the county or city will assess the property and this means your taxes will go up, same thing the insurance will increase as everything gets more expensive even to rebuild your home in case a disaster happens to your property. HOAs and other special assessments are not exceptions from being raised. Speaking about insurance, do not forget once in a while to talk to your insurance agent, perhaps between 3 to 5 years or when a spike in home prices happens, and reevaluate your insurance policy if you are insured at the real value of the property. Being underinsured is saving a couple of dollars on monthly basis, but it can hurt if the time of an insurance claim comes.

Another proper budgeting method will be to assess your expenses for repairs and capital expenditures. If you know the roof is 10 years old from its 25 years lifetime you might need to budget into your reserves a part of the roof replacement cost, by dividing the replacement cost to the years or moths remaining before you will need to reroof it. Same calculation can be applied to each major items that will have to be changed in the future.

8. Preserve proper conditions of your property

With the large amount of money that you’re putting into your home, you’ll want to make sure to take excellent care of it. Regular maintenance can decrease your repair costs by allowing problems to be fixed when they are small and manageable.

Property value is always linked to its conditions, over the years if the property is not properly maintained will slightly decrease in value or will not keep up on the same pace as the market does. This is a risk to the homeowner especially in the case that a need of selling the home arise.

For personal comfort and for keeping up with the market some upgrades to the property will be beneficial, if you are upgrading it only to keep up with the market make sure you do the proper upgrades with the same features as market demands. Over upgrading it is an extra cost that will not pay out. To learn about what market dictates in terms of upgrades simply search for most recent sold properties in your neighborhood and see where you are falling short in your property’s competitiveness on the market, or you can just reach out to a real estate professional in the area.

9. Pay extra towards your mortgage principal and refinance when rates drop

Another factor that will make you feel safer in owning a home is to make an additional payment towards your principal, it can be a larger amount occasionally, or small additions to your monthly payment.

You can also use some strategies which will help you save and make some difference during the years, by paying once a year and extra monthly payment may save you a couple of years of your interest. Another way is to set your payment weekly or biweekly, doing biweekly half of your monthly payment will actually be 26 biweekly payments, these will be a full 13 monthly payments per year. In a very standard scenario of a 30-year mortgage a bi-weekly payment can save you up to 5 years of payments, of course it all depends on your mortgage terms.

Do not miss out if rates are falling, refinancing with a lower rate can lower your monthly payment, and lower the interest amount paid overtime. But pay attention what is your cost of refinancing, not always refinancing is a cost-effective strategy especially if the rate drop is not significant and you will stretch out your loan term for another 30 years.

10. Haven’t you thought so far about the reserves account and got stocked

Haven’t you thought about all the reserves and now is the time to perform some maintenance as a roof, HVAC or water heater replacement, and you are struggling to come up with the amount needed to fix it. No worries, there are some ways out, a refinancing with cash pull out or a HELOC (home equity line of credit) can be a good help to handle the expense, if you are at the time that you can do a reverse mortgage or perhaps to downsize is another option. Even getting an instalment loan in the worst-case scenario and from now on instead of setting reserves for the specific repair, you will be repaying the loan back.

Now you are questioning yourself why should you own a house instead of renting and be hustle free?

The answer is simple, you can check out our other blog <<Why we consider real estate is a good investment>>.

And all the things mentioned above are not that scary as it sounds, this is just information and some ideas to have good habits and anticipating issues before those arise.

If you need more information for your particular situation please reach out to us, we will gladly do a free private consultation and find out how best to help you.

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