Buying a home? Know the Financial Prerequisites you must Consider

Buying a home is usually the biggest purchase we make in our lifetime. As soon as you decide to buy your home there are a lot of things line up for your considerations - a suitable locality, convenience, amenities etc. But the most important factor is the price tag. When you decide upon the budget of your flat, you must be having a lot of financial considerations in your mind.

Buying a home means a handsome amount of your hard-earned money will be spent. So, planning your finances well is the first and the most important step towards it. When I was about to buy my first home, a 2 BHK residential flat near Budge Budge, my financial adviser guided me to plan all the financial aspects for owning that home. Because the price tag is not the full story, many other financial issues may arrive that will determine your ownership of the flat.

So, check out the financial prerequisites that must be considered to make the process to go smoothly and quickly.

1. Sufficient down payment:

The down payment is the portion of the total sales price of your home that you have to pay to the seller to secure your purchase. Down payments range from 5% to 20%. The larger the down payment, the less you’ll owe on your mortgage each month and less interest you’ll have to pay. Mortgage lenders also require a down payment as it shows you are genuinely investing in a property.

2. Monthly mortgage payment:

After paying the down payment, you need to keep up with your mortgage. These monthly payments consist of a portion of your loan’s principal, which is the total amount borrowed, and interest, a percentage of the principal that goes to the lender. Here down payment can affect your interest rate as lenders will offer a lower rate to borrowers with larger down payments.

Also, the amount of down payment determines the amount of loan you can borrow. Though the exact amount will depend on the value of your home, the size of your down payment, the interest rate you qualify for and the length and terms of your loan. Lenders will look at your ability to repay the mortgage on time, so you should have a steady source of income and a good credit score.

3. Property taxes:

When you own a home, you pay your local, state, and federal governments specific fees to provide for the public services and amenities they provide. It should be paid regularly otherwise, you might owe a lump payment after the assessment of the taxes each year. Property tax depends on the home value. With a property tax calculator, you can see a home’s potential tax burden. Some pay property taxes directly to the Government monthly or annually, others include them in their monthly mortgage payments.

4. Memberships and utilities:

While buying a home, you must take a closer look at what it will cost to live in comfort. When you own the home, you are responsible for maintenance and repairs. Researching the average utility bills per month from the prior owners can be helpful to have an idea of how much it is going to cost you. The proper idea about utilities will help you to avoid paying any hidden charges.

5. Closing costs:

Closing costs are the expenses, over and above the price of the property, that buyers and sellers normally incur to complete a real estate transaction. Processing the papers for a home sale involves agencies at the private and government level. It is the last thing you pay before getting the keys. So, make sure you know each step of the way that you'll be signing and paying for when the property gets signed over. Altogether, they can come in at up to 5% of your home’s purchase price. This completes the financial transaction on a home sale.