How long do you plan on living in the home? While this is a very personal question, the average first time homebuyer stays in the home for 8 years, with 35% of homeowners living in the home for 10-15 years, and 16% living in the home less than 5 years. Family size and future plans for family expansion, employment type and likelihood of relocation, and community needs all play a part in this equation. Answers to these questions are important as it may determine the type of loan best suited for your specific needs, in addition to the current and projected interest rate environment. Further, home value trends are important in this equation, especially if you are putting less than 20% down and require mortgage insurance1 (PMI) Closing costs can be determined by the type of loan and the interest rate obtained, which also should be taken into consideration with these factors. An analysis can be performed to determine the comparative financial impact of continuing to rent versus purchasing a home, taking into consideration transaction costs, appreciation, monthly rent and rent increases, maintenance, and amortization.
What is the current interest rate? The interest rate is one of the most influential factors in determining how much you can afford to borrow and how much you will pay over the life of the loan. A lower interest rate means lower monthly payments and less interest paid overall. It is important to note that interest rates and closing costs are inversely proportional, meaning that additional closing costs may be required to obtain a lower interest rate. However, interest rates can fluctuate depending on market conditions, your credit score, and the type of loan you choose . You should compare different loan options and shop around for the best interest rate and terms that suit your needs and goals. Also note that future opportunities to refinance the loan may play into the strategic plan of how to structure the transaction and closing costs at initial purchase.
Environment? The environment of the home includes both the physical features and the location of the property. You should look for a home that meets your preferences and needs in terms of size, layout, design, amenities, condition, and maintenance costs. You should also consider the neighborhood, the community, the safety, the walkability, the proximity to shopping, services, leisure activities, work, school, family, and friends. The environment of the home can affect your quality of life, your happiness, and your resale value.
What is your overall family goal? Buying a home is not only a financial decision but also a personal and emotional one. You should consider your current and future family situation, such as your marital status, your number of children, your pets, your hobbies, your lifestyle, and your plans for retirement. You should also consider how buying a home will affect your relationship with your spouse or partner, your children, your parents, and your extended family. Buying a home should align with your overall family goal and vision.
These are some of the main factors to consider when buying a home. However, there may be other factors that are specific to your situation or preferences. Given the gravity and complexity of a real estate purchase and mortgage, you should consult with a real estate agent, a mortgage lender, a financial planner, or other professionals who can help you make an informed decision.
1 See What is Private Mortgage Insurance? Do I need it and how do I get rid of it?
2 See Rent vs Own.
