Buying a house is a huge financial commitment; and no, we are not just talking about the selling price of the property.
That is the most basic factor to consider, but beyond that, there are other financial questions you need to ask yourself before deciding whether or not to go ahead and purchase a particular piece of property. According to Devtraco; a real estate agency in Ghana these are the top questions to ask before buying a home.
How much can you afford?
Financing the purchase of a home can be done in different ways: you can buy it outright or pay it off over time through mortgaging. If you are able to pay for your home at once, that is great. If you are going to be paying in installments, there are two important tips. Firstly, make sure you can make at least a 20% down payment; it is the safest financial zone to be in when buying, and gives you less interest cost on your subsequent payments. Secondly, you need to know how much you can afford to give away every month. Experts recommend that you allocate about 28% of your monthly income to housing costs. Generally, your housing ratio should be between 25% and 30%. Anything beyond that, and you might be living in a danger zone (pun unintended).
What are your ongoing costs?
Beyond the selling price of a property, you will still end up spending more money on the house itself. People overlook set up and maintenance costs when calculating how much they can afford to spend in buying a new home. Remember, few homes come partly or fully furnished, and will require you to “customize” the house in the way you want, and keep it so. Costs include décor and furnishings, general maintenance, repairs, upgrades, etc.
Then, there are your monthly charges! Don’t forget your utilities – water, electricity, internet, cable TV, etc. There are also your garbage collection fees, home owner association dues, and any other fees peculiar to your neighborhood’s agreements at that point in time.
Thirdly, there is the important factor of maintaining yourself in the location of your house. How much does it cost to purchase things in your location? Is it an expensive neighborhood or an affordable one? What is the traffic situation, and how does it affect your fuel and other transportation costs? Are the neighborhood schools in your income range? You must think of your everyday costs as well, should you purchase the home.
Are your other financial priorities stable?
Surely, before you made plans to purchase a home, there were other financial obligations you had, and financial goals you were working towards. There may be bills to pay, a car to buy, investments to make, entrepreneurial ventures to run, or savings targets to reach. At this point, you need to assess whether these financial aims are still achievable in the timeline in which they were set. You must understand whether purchasing a home supports your goals and obligations, hinders/cancels them or simply postpones them. In each of these scenarios, know whether you can afford to have these goals/obligations moved around, and the degree of flexibility allowed for that.
One new financial obligation that rises in the event of purchasing a home, is an emergency fund. This is money stashed away, in case something happens to your property investment. You need to make sure your finances are healthy enough to support the establishment of this fund as well.
What is the housing market like?
Your home should be an investment, and investments take time to fruit. Make sure that whatever property you choose to buy is something you can hold on to long term. It should have the capacity to appreciate over time, and eventually be worth more than you bought it for. Warren Buffet once said, “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.” The housing market can rise and fall. If the market crashes (we sure hope this doesn’t happen again!) is owning your house something that is financially comfortable for you?