Houses located in emerging or progressive areas under development could yield a rewarding financial return. These houses could also yield social rewards. During the early years of development, you might have to endure construction sites and noise. Several months or a year or two might pass before houses in the community fill with neighbors, people who may quickly become among your closest friends.
Hidden costs of buying a house
A place to call your own, great neighbors and a community that is growing and increasing your house's value can make buying a house a solid financial and personal decision. To truly be advantageous, you need to know everything that you're taking on when you buy a house.
The principal is the largest part of your mortgage. It's also the part of owning a house that you might pay the most attention to. What you don't want to do is make the mortgage principal the only part of the owning a house that you focus on. In addition to the principal, when you buy a house, you will likely have to pay expenses like those listed below:
- Loan interest - Mortgages with adjustable rate interest can start low, but may not stay that way. A variable rate mortgage and a tracker mortgage are other types of mortgages that could increase should interest rates hike. A fixed rate might be higher, depending on when you buy a house, but a fixed rate mortgage could keep your monthly output steady.
- Closing costs - Items included in closing costs are the first month's homeowners association fees, prepaid interest and points.The more points that you pay upfront, the more you could lower your monthly mortgage installments.
- Mortgage insurance - Depending on the lender,you may have to pay mortgage insurance that covers 10% or more of your total mortgage. A way around the insurance or a way to lower the insurance is to invest more in your down payment.
- Homeowners insurance - Mortgage insurance and homeowners insurance are different. Mortgage insurance protects the lender.Homeowners insurance protects you and the lender.
- Homeowners association fees - Although homeowners association fees might be included in your closing costs, you will generally have to make these payments monthly. Don't overlook homeowners association fees and rules when you start looking for a house.
- Property taxes - The value of your property, the age of your home and the jurisdiction that your house is located in impact property taxes.
- Mortgage broker or realtor fees and commissions - These fees are higher in some parts of the country.
- Home inspection - Factor in the costs of getting a thorough home inspection.
- Home appraisal - You'll also need to get your house appraised to realize the actual value of the property.
Because there are additional costs that you must generally be responsible for after you buy a house, shop for property that you can easily afford. In other words, don't buy a house that leaves you with only $100 or less left each month after you pay your mortgage. After all, there are other costs involved in owning a house that you will surface during and after closing.
Gather your documentsEach lender will be slightly different when it comes to what records and documents they require from you. In general, lenders will require two years of work history, proof of income, and tax papers. They will also ask for your permission to run a credit check. Some things you should bring when applying for a mortgage include:
- Your most recent pay stubs (at least two)
- Your most recent W-2 forms
- Completed tax returns
- Bank statements
- Gift letters
- Debt - credit cards, student loans, etc.