The Most Important Factors To Identify Before Buying A Home

According to the U.S. Census, approximately 65% of Americans over age 18 are currently homeowners. If you are in the 35% of renters that want to become homeowners, you might be wondering where even to start. Buying a house is likely to be one of the biggest (if not THE biggest) financial decisions you will make in your life. Owning a home locks you into a stable place to live, a predictable payment each month, and an appreciating asset (via Credible). So, it makes sense that before jumping into the process, you would want to do your research first. You might be ready to buy the home of your dreams, but how do you secure it?

According to Opendoor, you should stay flexible throughout the home buying process. You should begin by expecting the unexpected. This is great advice, as becoming a homeowner is certainly filled with ups and downs. But this approach can only take you so far. Here are the most important factors to consider before buying a house.

Saving a down payment to purchase a home can be one of the most challenging steps in the process, but it is also one of the most important. The reason it's so tricky is that setting aside extra money each month on top of your likely large rent payments, student and credit card debt payments, car payments, and everyday expenses is quite the task. Luckily, saving up your down payment isn't a race, and there are plenty of programs available to help you purchase a home with a smaller down payment.

The traditional amount for a down payment is 20% of the final closing price, with the remaining 80% paid out through a 15 or 30-year mortgage. But in some parts of the United States, average home prices are soaring, making this nearly impossible. For example, Zillow reports that the average home price in California is almost $730,000. That's a down payment of $146,000, which wouldn't be feasible for most buyers. Luckily, you can still qualify for a mortgage with as little as 3.5% down, thanks to a few federal programs. Programs through the Federal Housing Administration, the Department of Agriculture's Rural Development Program, and the U.S. Department of Veterans Affairs offer small to no down payment options (via NerdWallet).

The higher your credit score, the better rate you'll be able to negotiate on a mortgage. You are likely to be pre-approved for a better mortgage with a higher score as well. So, as soon as you begin saving your down payment and making plans to become a property owner, you should take a look at your credit score. According to Quicken Loans, to qualify for a mortgage with a traditional lender, you need a credit score of at least 620. However, keep in mind that a score in the 600s is still on the low end, and most lenders like to see a "seven" at the start of your score. If you are applying for a loan through a federal program, your score should be between 580 and 620.

If your current score is lower than this, don't worry! There are plenty of ways to raise your credit score before paying off your existing debt. The key is to pay your minimum balance each month on time, even if you can't pay it off. This is because your payment history accounts for 35% of your credit score, so paying just a little on each bill each month can really pay off (via Her First 100k). The next 30% of your score is based on how much of your credit you're actually using. Most companies like to see borrowers using less than 30% of the credit available to them.

Before a mortgage company lends you hundreds of thousands of dollars to pay off your home, they want to make sure their investment will be safe with you. To this end, most lenders will want to see a detailed history of your most recent employment. You'll likely need to provide your most recent tax returns to prove your current income levels, as well as your last few pay stubs as supplements.

According to The Mortgage Reports, if you've recently changed jobs, then you might have a little bit more explaining to do to your lender. However, as long as you have the paperwork and funds to back up your claims, banks can work around most unusual employment circumstances. Rocket Mortgage also warns that income from your primary job isn't the only thing to disclose to lenders. You'll also want to let them know about any child support payments, alimony checks, and even Social Security income.

Once you begin saving your down payment and understand your credit score, it's time to start thinking about the features and amenities you want in your perfect home. Maybe you aren't as picky about the actual style of the home. Perhaps you don't care if it's a cottage or craftsman-style house, as long as there is a spa bathtub (or at least room for one). Or maybe you think in the exact opposite way. Maybe the house's overall aesthetic is more important than any of the functionality.

According to By Carrier, some of the most desired features in a perfect house are tall ceilings, an open and accessible floor plan, a low-maintenance exterior, plenty of outdoor entertaining space, and privacy. No matter what you prefer, there is one thing that you must do: If you are purchasing a home with another person, be sure to make a list of these things before you begin looking. That way, you can compare lists and agree on compromises before looking at houses.

The housing market is volatile and is subject to many extenuating circumstances, like the stock market, local economic events, and the rate of development in the area you are looking to buy. You might hear things like, "it's a seller's market!" meaning that there are not enough homes to go around, and pricing for even poor quality homes will be competitive. You might even hear the opposite, "it's a buyer's market!". This means there is a glut of homes on the market, and even lower offers might be accepted by more desperate sellers.

However, a good real estate agent will be able to guide you through the home buying process, no matter the current market conditions. Instead of trying to game the market, speak to your agent about your best options. In addition, be sure to monitor the current mortgage interest rates, as they have a more significant impact on your financial future than any "buyers/sellers" market, per Investopedia.

So you've found the home of your dreams, but now what? Before buying the house, you must be sure it passes all inspections. This is for your safety, but also for the sake of your wallet, as a home that failed any step of a major home inspection likely means expensive repairs down the line. According to Investopedia, most mortgage lenders won't even offer financing to close on a home unless it has been thoroughly inspected. A good inspector will ensure there aren't any cracks in the home's foundation and that the home's roofing is safe and solid. They will also test the home's electrical and plumbing systems for any faults and see that the HVAC system is working correctly. Finally, they'll ensure the home's fire safety is up to code.

Rocket Mortgage warns that most homes aren't likely to pass an inspection with flying colors. There are often things that buyers might like addressed before proceeding with the purchase. Sometimes, sellers will agree to fix the problems, but other times they might decide to sell the home for slightly less so that the buyer can resolve the issue upon purchase. In some markets, the seller might agree to neither of these things, which is why a "home inspection contingency" is important to include in any offer. This allows the buyer to walk away from the sale legally.

Buying a home that needs a bit of work might be less competitive, but it can also be a horror story waiting to happen, per Rocket Mortgage. When you purchase a new home, it is common practice to repaint the walls to your taste, swap out a few light fixtures, and maybe replace the flooring if it's worn out. However, if the home you are interested in buying is more of a fixer-upper and less of an "it's fine, but I'd prefer the living room not to be orange" kind of home, take pause to consider the finances and time investment required.

According to This Old House, doing the math on the repairs needed and figuring out why you're buying the house are the most important things to think about. Are you attempting to renovate your dream home that you'll inhabit for the next 30 years? Or are you going to flip the house and try to sell it for profit? If it's the first, the financial strain might be worth it since it will increase your quality of life for decades to come. But if it's the latter, be sure to crunch the numbers to assess your risk tolerance.

Before you close on a home, you should have a general idea of how long you might like to live there. Of course, things like last-minute job opportunities or an unexpected addition to your family can change things at any time, but in general, ask yourself a couple of questions. Is this my starter home? Is this my forever home? If you plan to only live in a home for a few years before upgrading or moving elsewhere, keep in mind that you might be on the hook for capital gains taxes if you sell before two full years in residence, per SFGate.

According to Investopedia, capital gains taxes are fees homeowners have to pay if they treat properties as investments rather than primary residences. Homeowners who occupy a place for at least two of the last five years are off the hook, but any less and you could see a larger bill come tax time. Capital gains taxes are charged at your normal tax rate. 

Homeowners associations have a lot more power than you might think. According to Cedar Management Group, the first purpose of an HOA is to manage and sell homes in a specific community, often by the original developer. Once a certain number of homes in a subdivision have been sold, ownership then shifts to the homeowners themselves, governed by an elected HOA board. This board typically oversees things like trash pick up and maintaining community parks and other shared spaces.

Depending on the age of the neighborhood, the HOA fees can be astronomical as the community works to pay off the newer amenities (via Forbes). In addition, certain HOAs also have more restrictive rules than others. If you purchase a home in a newer community with a strict HOA, you'll pay high fees and be subjected to stringent approvals for things like repairing a fence or painting your home a new color. If you live in an older community, or one that is less strict, your experience will be the opposite. Be sure to ask your realtor about the HOA, which governs any home you are interested in purchasing.

Certain areas are more prone to natural disasters than others, so you must consider your risk tolerance when purchasing a home that might require a bit more insurance. For example, Forbes reports that homeowners in California have substantially changed their buying and selling behaviors in recent years due to the threat of wildfires in the state. In Texas, the Houston real estate market changed completely after 2017's Hurricane Harvey. Potential buyers wanted to steer clear of the parts of town that flooded and instead purchase in areas that did not (via Houston Properties Team).

According to Bankrate, purchasing a home in a FEMA-designated flood zone might come with the advantage of being a bit cheaper, but it's most definitely a high-risk situation. This is because insurance premiums could undercut your mortgage savings. And if you choose not to pay those premiums, you could easily lose everything. Some natural disasters, like landslides, aren't even covered by most insurance programs. This led The Los Angeles Times to encourage readers to "hire a geologist" rather than put themselves at risk of buying a home on an incline.

With the rise of remote work, many potential homebuyers might not need to consider how a certain home would work with their daily commute. However, if you still report to work in person, your potential commute might be one of the most important things to consider when buying a new property. This is because even if the house is perfect, a long commute to work or school will quickly dampen things, per The Mortgage Reports.

Studies from Los Angeles CA Real Estate assert that a shorter commute time makes people happier, as they have more time during the workweek to focus on things they enjoy, instead of spending all their free time getting to and from work each day. A smaller detail many commuters might overlook is that banks want to make sure they are lending you money for your primary home for most mortgages. If you purchase a home with an abnormally long commute to your place of employment, it could raise suspicions.

Another factor to consider when purchasing a home, according to Money Talks News, is the overall feel of the neighborhood and the amenities available there. If you like swimming, is there a local pool nearby? How far away is your local library? How close are the nearest gas station and grocery store? Are they close enough for a milk run in your pajamas or a quick trip back in case you forgot something? Driving 15 minutes to the rear of your neighborhood to reach your home might seem nice for privacy reasons, but consider how that drive time will add up daily.

If the amenities you need and enjoy are readily available for the home, you plan to purchase, next pause to consider who your new neighbors will be. Are those who live nearby out and about enjoying the amenities? Do they seem friendly? Is this a social structure you could see you and your family easily fitting into?

According to Investopedia, different seasons bring out different types of buyers. While there still isn't a "perfect" time of year to move, the changing seasons have plenty of perks. More families tend to move in the summertime, so they don't interrupt their children's school schedules. Because of this, there is overall market stimulation. That's because there are more homes on the market and more competition to buy. It's quite the opposite in the wintertime, as most people don't want to mix the stress of moving in with the holidays. Because of this, sellers might be a bit more flexible on price during the winter to close on the house, as there are fewer people interested.

If you're willing to move during the winter, there are other perks as well. Moving companies typically aren't as busy, so it's more likely that you could negotiate cheaper rates and be privy to a more flexible schedule (via Moving.com).