Life is full of exciting milestones, and one of the biggest ones you may experience is owning a home for the first time. While renting is a perfectly suitable way to live, some people are not made to live in borrowed living spaces for their entire lives. Many Americans crave the privacy that comes with buying a home, as well as the investment opportunity and the ability to do home improvement projects.
However, a home is a massive investment, so it is important to understand what it means to be a homeowner. The last thing you want to do is have no idea what you are getting into and struggle with mortgage payments or maintenance issues.
Before you decide to buy your first home, here are seven things you should know ahead of time.
Appreciation is Not Guaranteed
In general, homes increase in value over time even if you do not invest in big upgrades. However, it is not an automatic process. External factors can come into play, such as the value of the local market, commercial trends in the area, and even nearby properties. Also, you have to take care of the home for it to increase in value, so there is some effort and investment required.
Fixed-Rate Does Not Mean Payments Never Change
When you take out a home loan, one of the options you will have is an adjustable interest rate versus a fixed interest rate. With a fixed rate, the interest at the time of closing is locked in for the length of the loan. However, your payments can still fluctuate from month to month, primarily because of changing tax evaluations of the property. Though the interest will stay the same, mortgage payments can fluctuate due to property taxes.
You Can Rent Out Part of the Home to Cover Mortgage Payments
Renting is very popular, especially among the millennial generation. People are hesitant to take on long-term mortgages and instead prefer shorter-term commitments in rental units. If you have a large enough space, you could convert part of it into a small studio apartment. If apartments are in high demand in your area, you could have tenants living in this separate unit and paying you rent, though renting out real estate is more complicated than that. These rental payments can put a huge dent in your mortgage payments.
Be Proactive With Maintenance
Maintenance is often the biggest unknown when owning a home. Without a landlord or property manager, you are now responsible for all repairs and upgrades that the property needs. To avoid costly repairs, it is important to be proactive with your maintenance practices. Change air filters when recommended, not when it is too late. Clear out drains regularly for water fixtures. Clear your gutters frequently to prevent clogs that will cause water damage. The more proactive you are with maintenance, the less likely the home is to experience costly damage.
Perhaps you have calculated what a mortgage would cost and estimated the interest payments. Maybe you have even considered all the extra utilities like garbage removal, water services, and electricity. However, when you buy a home, many closing costs must be paid either upfront or rolled into the loan itself for a higher total balance. In general, buyers will pay an extra 3-6% of the total price of the home in closing costs.
New Constructions Are Not Always Repair-Free
If you have the resources for new construction, or you are prepared to take out one-time close construction loans, then perhaps building a brand-new home is your ideal choice. Many future homeowners assume that a new build will cost more but that there will be no maintenance issues for the first few years. Unfortunately, this is not always the case. Depending on the complexity of the design and the competency of the construction crew, new does not always mean flawless.
Upgrades Must Follow Local Codes
You might think that because you own the home, you can do what you want with it. While this is certainly true for the most part, it doesn’t mean you can upgrade the property at will. You must abide by local codes and regulations at all times, especially when building on your property. Before you start putting up a fence or building a new shed in the backyard, make sure you are aware of local codes and have obtained a building permit if necessary.
Do Your Research Before Buying a Home
Losing a home that you own or discovering that you made a poor investment can be devastating. To avoid this situation, you need to know what you are doing before becoming a homeowner. This involves plenty of research as you discover the realities of homeownership and what it takes to buy a house. Consider the concepts mentioned above and do more research to get a clear picture of what it means to be a homeowner.