Whether you’re buying your first home or an additional property to serve as a rental, there are a few things you should know.
Buying a home in 2021 is a challenge for many, as demand exceeds supply in many areas. In order to avoid missing out on a home that checks all your boxes, here’s how Rhino Property Management of Utah suggests preparing before putting in an offer.
Types of Housing
Did you know there are different classifications of housing? Before you buy, know what type of home you’re investing in.
- Single-Family House
- Condominium (condo)
- Multi-Family Dwelling
The amenities you want in a home can help steer you toward the best type of housing for you. Also, if you plan to purchase your home and turn it over to rental property management, one type of home may suit your investment better than another.
It’s a given there needs to be a serious look at your finances before purchasing a home. But what, specifically, should you be going over? How can you be best prepared?
Mortgage lenders like to see a good credit score so they know you will be a reliable client. They want someone with a history of paying back loans, and with a good debt-to-income ratio (DTI). This means that the amount of money you owe isn’t overwhelming in comparison to the amount of money you earn.
- Fair Credit Score – 580 to 669
- Good Credit Score – 670 to 739
- Very Good Credit Score – 740 to 799
- Excellent Credit Score – 800+
Current Monthly Expenses
You may have an excellent credit score, but what do your current monthly expenses look like? Before you buy, see if a mortgage payment will fit into your monthly budget. Keep in mind that when you own a home, you have to factor in additional costs such as mortgage insurance, property taxes, utilities, or homeowner association fees (HOA). A lender will usually want to see a mortgage that is no more than 28% of a potential buyer’s monthly gross (pre-tax) income.
A modest goal in rental property management is to make at least $100 in rental profits. After looking at your current monthly expenses, is that doable with the property you have in mind? Of course, with the right investment and rental property management team, you could potentially make a lot more.
You may be familiar with the recommendation that a down payment is about 20% of the home’s value. As a buyer, you would need to cough up $20,000 for a down payment on a home valued at $100,000. But did you know that in addition to this lump sum, you may also face other upfront out-of-pocket expenses before you can sign on the dotted line?
Home Inspection and Appraisal
Due diligence before purchasing a home should include having a home inspection and an appraisal. You want to be sure the home is valued appropriately, and that there are no hidden problems lurking in the home that will cost you later. A home inspection could cost as little as $300, but on average you’re looking at $337. Similarly, a home appraisal can range between $300 and $400, with the national average hitting right at $339. For both the inspection and the appraisal, the cost will vary depending on the size of the home and property.
When buying a house, keep in mind there are also closing costs, which can be up to 6% of the value of the home. Referring back to your hypothetical $100,000 home, at closing you could need an additional $6,000 on top of the $20,000 down payment.
Stamp of Approval
Don’t wait until you’ve found the perfect home to get approved for a loan! Start the pre-approval process now so you can make an offer on a home with all the data to back you up as an ideal buyer. Mortgage pre-approval means you’ll know ahead of time what your interest rate will be, and what the estimated monthly payment will be on a home in your budget. Getting this stamp of approval from a lender means you’ve done your homework and proven you’re financially prepared to buy a house.
Where to Look
Perhaps the best part of being pre-approved is that you now have a set budget to stick with. This will guide you on the type of houses you look for, and where. The thrill of the house hunt can sometimes overshadow the reality of it. Be sure you’re looking in neighborhoods that will fit your lifestyle and your budget.
Things to Consider when House Hunting
Location, Location, Location! When you drive through a neighborhood, what do you like about it? Do people wave as you go by? Will you be near your favorite hiking trails, restaurants, or loved ones? Here’s what else to think about when narrowing down your ideal location.
- Accessibility to work, schools, airport, public transit, and entertainment
- Fenced yards for pets or privacy
- Traffic patterns that may affect you – On-street parking? One-way streets? Only one way in or out of the neighborhood?
Obviously, there’s so much more to consider, but it varies on the individual and the purpose for the home purchase. If it’s your primary residence you may be pickier than if you’re investing in a rental. But, still, property managers can collect higher rents on homes in desirable neighborhoods.
If you have any plans to purchase a home with the intent of turning it into a rental, get some of the best property management in Utah with Rhino.