Buying a home may be an effective way to help you build wealth over a period of years or decades. This is because a home tends to appreciate in value over time, and the equity that you build in that property can be used to pay off debt, invest or otherwise secure your financial future. However, there are many variables that you should keep in mind before you close on the purchase of a residential property.
What Type of Loan Will You Pursue?
There are many different types of loan products that may be available when it comes time to purchase a home in Texas. If you have a down payment of at least 20%, you may want to opt for a traditional mortgage. In many cases, a traditional home loan will be less expensive over time because you won’t have to pay mortgage insurance.
However, if you don’t want to put 20% of the purchase price down at closing, you may want to opt for an FHA or USDA loan. In the event that you served in the military, it may be possible to obtain a VA loan. These products feature flexible down payment, credit and cash reserve requirements, which can make them ideal options if you don’t have a lot of money or a lengthy credit history.
How Much Can You Afford to Spend?
Ideally, you will set a home budget prior to shopping for a mortgage. This is important because a lender will let you borrow whatever you qualify for as opposed to what you can afford to spend. You can use a home loan calculator to determine how much house you can buy in your area after accounting for taxes, interest and other costs.
How Long Do You Expect to Spend in Your Next Home?
As a general rule, you should expect to spend at least three years in a house after you purchase it. This ensures that you have enough time to build up sufficient equity to sell the property for a profit. You want to have an idea as to how long you’ll stay in a home before you buy it because it will help you decide what type of property to buy.
For instance, if you are going to stay in a house for the rest of your life, it’s important to buy something that can evolve as your needs change. If you plan on having kids at some point in the future, it may be best to choose a home that has an extra bedroom.
Alternatively, you might want to choose one that has a finished basement or an attic that could be finished at a later date to give you more living space. If you are only planning to stay in your house for a limited amount of time, it may not be a big deal to buy something that merely meets your current needs.
It’s worth noting that you generally have to stay in a home for at least a year if purchased with an FHA, VA or USDA loan. This type of requirement generally doesn’t exist if you get a traditional mortgage.
How Much Work Do You Want to Put into Your Home?
Another reason to think about how long you want to stay in a house is that it may help you decide how much work you want to put into it. Generally speaking, it’s easier to justify spending money upgrading a home that you plan to stay in for several years or decades. Otherwise, it may be better to look for a house that has already been upgraded or that will last for the year or two that you plan to stay in it.
Do You Want to Live in a Neighborhood Controlled by an HOA?
Living in a neighborhood controlled by an HOA may restrict your ability to enjoy your property. This is because you will likely need to abide by rules dictating what color the home’s exterior can be, what type of plants you can have and how tall the grass can get before it must be cut. There may also be restrictions as to how many cars you can have in your driveway or the number of people who can be in your house at any given time. In some ways, living under HOA rules is akin to having a landlord who won’t help you maintain your house.
If you are planning on buying a home in the near future, it’s critical that you think about what you want or need from a house. It’s also important that you consider how you will pay for property, how long you plan to stay there and any other variables that may be relevant. Otherwise, you may find that you own a house that you can’t afford or can’t sell in a timely manner.