It isn't very often that you get to choose your home. So once you arrive…
Buying a home can be a substantial financial burden on its own, and most buyers tend to be prepared for some of the less obvious sources of expense — closing costs, movers, and so on. In addition, however, there often are many other expenses involved that you don’t foresee. It’s important to keep the possibility in mind that you could be on the hook for other bills and plan well in advance.
You’re probably already aware that you owe dues on a regular basis to the condo or homeowners’ association, but there could be another unpleasant surprise waiting for you in the form of special assessments. The law requires sellers to warn buyers of the possibility of payments that may be due soon, say, to perform major roofing or plumbing repairs on the building. Even if the seller doesn’t tell you about any such upcoming payments, potentially for thousands of dollars, you could try to talk to the association or look through the minutes of recent meetings to see if there’s anything in the pipeline.
Old fixtures that may need replacement
If the home you’re buying has traditional, old-style moldings, doors, and windows, you’re likely to be delighted with how beautiful they look, but it’s also important to keep in mind that an old home is likely to be built to old, outdated building standards. You may be looking at absent weatherstripping or storm windows, inefficient heating and plumbing, and an ancient boiler. If you don’t update these features after buying, you’ll likely be saddled with heavy heating and repair bills from time to time. It’s important to be aware of how much these replacements are likely to cost you and to be prepared for them.
In general, it’s a good idea to set aside 2 percent of your home’s value to help pay for maintenance – appliance repairs, plumbing repairs, roof repairs, and the like. If your home is worth $200,000, for instance, your annual maintenance fund should receive about $4,000 a year to help you meet these unexpected sources of expense without relying on credit.
The earnest money deposit
Sellers are often interested in making sure that they only deal with real, serious buyers and not with buyers who just want to put in an offer with no realistic expectation of going through. In general, the earnest money deposit that you’re required to put intends to be 1 percent of the value of a home. For instance, on a $200,000 home, you would need to put in a deposit worth $2,000. The deposit may be refundable if you turn down the house for a valid reason — for instance, if your contract has an appraisal contingency and your appraisal values the home at a level that’s lower than the asking price. If you change your mind about buying a house because you like something else better, however, you could lose your deposit. It’s important to keep this potential expense in mind before you ready yourself to put in offers.
Money in the bank
Real estate agents have always recommended that buyers step into deals with extra money in the bank even once they make their down payment. Many lenders, however, now make it a requirement. It’s now a basic necessity to have at least six months’ worth of mortgage payments ready in a savings account before you finally sign the contract.
Getting ready to buy a home is a major undertaking. You need to be aware of how big it can get, however. With these tips in mind, you should be able to head into a purchase better prepared.
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