Home Ownership Guidelines

What to consider before you purchase a new home.

You've been driving around neighborhoods looking at houses and dreaming of moving into one of your

own: nothing major, just a postage stamp yard with a swing for your growing family. Or maybe a fenced-in area where your dog can run around suits your needs. But are you ready for all that owning a house entails?

Here are five areas of your life you should carefully review when buying a home.

Financial Commitments

• How does your credit report look? Is your score excellent or just average? Is there anything you can do to raise that score? The mortgage rate offered will be influenced by how lenders perceive your ability to pay off the loan. Even ½ of a percent can provide tremendous savings over the life of the loan.

• Do you have enough savings to put down 20%? Putting 20 percent or more down on your home helps lenders see you as a less risky borrower, which could help you get a better interest rate. A larger down payment will also lower your monthly mortgage payments, and with at least 20 percent down, you likely won't have to pay PMI (private mortgage insurance).

• What debts do you have? Student loans, a newly purchased car, or perhaps you've recently had a child and will want to start saving for college. These financial obligations need to be factored into your monthly budget to help you see what mortgage you can afford. MoneyUnder30.com suggests you "aim to keep your mortgage payment at or below 28 percent of your pretax monthly income. Aim to keep your total debt payments at or below 40 percent of your pretax monthly income."

• Don't forget to factor in closing costs in the total price. These can range between 2-7% of the home's price and include things like escrow fees, title search costs, state and local taxes, and attorney fees.

• Make sure you add homeowners, personal liability, and personal property insurance fees to your total costs. This is where Mutual Assurance's reduced premiums and exceptional service can make a significant impact on what you can afford.

Market Trends

• Doing a little research upfront can help you decide if you should be looking to buy now, or perhaps in a few months when the market swings your way.

• Take a look at interest rates. As we noted before, even ½ a point can significantly impact your total cost over the lifespan of your loan.

• Talk with a loan expert to review your options. Paying more than the required amount of money each month can save you thousands over time. A mortgage banker can tell you the types of loans that would work better for you.

Longevity

Closing costs are one-time expenses you incur when purchasing a home. If you think you will only be living in a new house for a few years and aren't sure the housing market will support a higher sale price when you move, purchasing a home may not be the right financial decision.

• If buying is still your choice, discuss your plans with your mortgage lender to secure the best type of loan for your needs. Some loans can help you build equity faster, which may be helpful if you think you'll be moving in a few years.

Lifestyle

• Before you buy, look into the new costs you will have as a homeowner. When you rented, things like repairs and breakdowns used to be covered by a landlord. These will come out of your pocket now. According to the one percent rule, you should set aside at least one percent of your home's value every year for home maintenance.

• Consider time away from work for these repairs and needed deliveries/installations.

• Homeowners insurance, personal property coverage, and personal liability coverage are now a necessity. Mutual Assurance is a great option for providing very affordable coverage with top-drawer service.

• All of these expenses should be budgeted into your monthly schedule to ensure you have the funds available when needed.

Commitment

• Are you looking to move into a mansion or a cottage? Do you want a lot of land or a postage stamp-sized yard? Do you like trees or do you want vast open skies? Beyond looking at what you can afford, how much time and energy can you give to your new home?

• Larger homes will cost more to maintain and take longer to clean and keep up.

• A larger yard will require more landscaping time and energy, and mature trees have special care needs to keep them healthy and safe.

Owning a home is the fulfillment of a dream for many and likely the single largest purchase you'll ever make. It provides an excellent opportunity to build equity for your future and a real sense of accomplishment. Understanding the costs and commitment required to own a home is integral to ensuring a successful outcome.

Contact Mutual Assurance Society of Virginia for your home insurance.

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