10 Financial Issues to Consider Before Purchasing a Home in San Diego
Buying a home is exciting, and “house hunting” can be fun as you begin to imagine yourself living in a certain home and area. Before you dive in there are many things to consider, other than the number of bedrooms and bathrooms you’d like in your new home.
1. Cost of Living. Before you apply for a loan or look to get preapproved for a loan, you should be thinking about how much you can afford on a monthly basis – starting with your debt to income ratio. Debt-to-income ratio, or DTI, is a percentage calculated based on your fixed monthly expenses divided by your gross monthly income. A healthy DTI is estimated at 10 to 20 or even 30 percent, while those inching near 36 percent or above are already at risk in terms of getting home financing.
2. Mortgage Application Fee. Different lenders charge different rates for this but you can typically expect to pay a couple hundred dollars. This will be part of your closing costs.
3. Home Inspections. To ensure that you are purchasing a home that is free of major problems you will want to have an inspector take a look at all aspects of the structure and foundation of the home. Inspectors consider things like termites, structural issues and foundational problems with the home. You can expect to pay an average of $300 or more depending on the size of the home.
4. Closing Costs. According to FICA (Federal Insurance Contributions Act) and FDIC (Federal Deposit Insurance Corporation), processing papers for a home sale involves agencies and real estate experts to list out every single expense involved in a transaction. The closing itself runs about 2 to 3 percent of the cost of the home and lenders must provide a “truth in lending” disclosure that will outline all of the actual percentages and financing fees before closing so you can avoid any surprises from sneaking up on you.
5. Homeowner Association Fees. Be sure that you are aware of any HOA dues that will be required above and beyond the actual cost of the monthly mortgage payment. Fees are typically collected to pay for community property in the area, like community pool maintenance, landscaping and other work that benefits the entire neighborhood.
6. Solar Leases. Many home owners in San Diego have opted to make the switch to solar energy, and this can involve long term lease agreements for the panels and electricity generated from them. Typically, instead of paying monthly variable energy bills, you pay a fixed rate bill each month.
7. Homeowners and Private Property Insurances. This can be paid separately or factored into your monthly mortgage payment. It is important to consider where you live and the types of insurances recommended for the climate and location, like earthquake, flood or fire insurance for example.
8. Property Taxes. The amount you pay in property taxes is based on the value of your property. This can also be paid separately or included in your monthly mortgage payment. Typically in California your property tax is equal to 1.25% of your purchase price but the actual amount will vary from city to city or county to county.
9. Credit Score. Check your credit reports for inaccuracies and weak scores. You can get them from the three major reporting agencies -- Equifax, TransUnion and Experian -- free once a year, but ensuring any problems are cleared might involve charges of about $15 to $40 or more to check them again [sources: FTC, Equifax, Experian]. AnnualCreditReport.com is the government-sponsored site where you can get free annual reports, so avoid offers that charge for monthly monitoring fees.
10. Regular Maintenance. Some people enjoy renting because repairs are handled by the landlord or property owner. When you are the home owner, and the toilet leaks or pipes need updating, it becomes your responsibility to repair those things. Preparing for emergencies will help you have enough cash on hand if something needs to be repaired. Also, check to see if there are any home warranty options that may cover some of the costs.
There are many financial issues to consider when purchasing a home, hiring a professional REALTOR® to help guide you is recommended.
If there is anything I can do to help, call or email me, I’m happy to help!