Buying a house can be a daunting task for any prospective buyer. With so many factors to consider it is difficult to understand where to start and what to consider. Knowing the ins and outs of homebuying can allow you to make an informed decision that is best for you, your family, and your finances.
This article will be tailored to focus on buying a house in the $300,000 price range.
Where to Start
The first step in the home buying process is taking a deep dive into your financial health and determine what you want out of the purchase. You need to understand how much money you could afford to put into a down payment, how much income you can spend on mortgage payments and monthly bills, and still have money left over for other costs. With this information you can identify what your prospective price range is. In this case the $300,000 price range will be the focus.
You also want to research what you are looking for in houses around your prospective price range. You want to find the desired number of bedrooms, bathrooms, square footage, acreage, neighborhood, and other specifics about your ideal home. This information will not only aid your decision making throughout the buying process, but also allow you to inform your realtor on houses to look for.
Understand Your Finances
An individual’s finances are a culmination of different items including income, debt, credit score, and savings. Buying a house is a massive financial purchase for many buyers. Although you will not need all $300,000 upfront, there are a variety of costs to consider.
You will need to prepare not only for the upfront costs, but the continual payment of the home. Do a full audit of your own finances and do not consider buying a house if you do not have at least 6 months of living expenses saved. Lenders will require buyers to have money for down payments and closing costs as well as an emergency fund for unexpected expenses.
Credit Score
In order to qualify for a home loan lender will check the credit score of any prospective buyer. A credit score is a rating on how well an individual is able to pay their monthly expenses and bills on time and in full. Lenders generally will not loan money to individuals with poor credit.
In most cases, banks and lenders also do not lend money to individuals with a high debt-to-income ratio over 43%. Credit score and debt-to-income ratio is used to identify an individual’s borrowing risk and deemed reliable as a borrower.
Income
Lenders typically will not approve a loan which takes more than 30% of an individual’s monthly income. Depending on the interest rate of the mortgage and the size of the down payments lenders will require a certain income to approve an individual for a loan.
For a $300,000 house you will typically need to earn an income of at least $40,000-$60,000 a year. In order to ensure monthly mortgage payments are less than 30% of monthly income lenders analyze the income level of prospective home buyers.
Down Payment
Down payments are the initial transaction that must be completed before purchasing a home with a loan. Down payments vary in size by the percentage of the house price the buyer wants to pay upfront. According to Rocket Mortgage the average down payment in America is 6% of the loan size.
Many people have heard of the 20% rule which states that a home buyer should look to pay a down payment of 20%. This is simply a myth that has been promoted by lenders because it decreases the risk of lending money.
For a $300,000 loan down payments will vary by percentage, but a 20% down payment would be $60,000.
How to Calculate Down Payment
To calculate the down payment of any loan simply take the total value of the loan and multiply it by the agreed upon down payment percentage. For example, a 5% down payment on a $300,000 loan would be $15,000.
Mortgage
A mortgage is an agreement between a lender and a borrower which gives the borrower money to purchase or refinance a house. A mortgage also means the lender can take back possession of the house if payments are not made on the loan.
The most important aspect to consider beyond the value of the mortgage is the mortgage interest rate. The mortgage rate is the interest charged on a mortgage throughout its lifecycle.
For example, a 30-year mortgage on a $300,000 home with a mortgage rate of 4.25% and a down payment of 10% would require over $200,000 of interest to be paid overtime. Because interest rates are constantly changing it is important to understand where the market is at the time of the purchase. High interest rates will lead to much higher end costs to home owning.
Mortgage payments are paid monthly to pay off the loan. Interest rates will be chosen at the time of the loan as well as monthly payments associated with the mortgage. Mortgage lifecycles can vary but usually are between 20 and 30 years.
A monthly mortgage payment for a $300,000 loan with the same parameters as mentioned above would be around $1,500. For a 20-year loan that number would jump to nearly $1,800.
The monthly mortgage payment is the recurring payment home buyers are responsible for following the purchase of their home, so it is important to have a well-rounded knowledge base on mortgage rates, yearly total, and down payments.
How to Calculate Mortgage Payments
There are plenty of online resources to calculate potential mortgage payments. Lenders will also explain what potential monthly mortgage payments would look like when discussing potential loans. Savings.org’s mortgage calculator is an excellent tool to use when researching for a new home.
Maintenance
Buying a house also means maintaining the house throughout your ownership. The general rule for maintenance on a property is 1% to 4% of the home’s value. For $300,000 the range of home maintenance is between $3,000 and $12,000. Maintenance could include replacing air filters, cleaning gutters, or even lawn maintenance.
Maintenance can be difficult to budget for because it is uncertain how much money will be necessary throughout the year. To stay on the side of caution prospective home buyers should be able to put at least 3% of their home’s value away each month for maintenance.
If maintenance is not as expensive as expected and you find yourself with money left over, put it into a secure savings account to prepare for any future home repairs that may be necessary. Home repairs usually are expensive and having money saved for unforeseen circumstances can allow any homebuyer ease of mind.
Monthly Bills
Along with mortgage payments, new homeowners also inherit a variety of monthly utility and service bills. A mortgage loan payment covers the money owed to a lender, but homeowners are responsible for covering electricity, cable, internet, water, and, in some areas, Homeowner’s Association (HOA) fees.
Utility bills should be part of the consideration for total fees associated with paying for a house.
Market Competition
The housing market in recent years has experienced an influx of competition raising the prices of houses everywhere. Between December of 2020 and December of 2021, the S&P CoreLogic Case-Shiller Index found that house prices in the U.S. rose over 18%. The national average since 1989 has been 4.2% yearly.
House prices have spiked, but prospective home buyers have not waned. The competition for houses, especially in the $300,000 range is extremely competitive. Houses are selling quickly, and they are expensive. The average value of a U.S. home is roughly $280,000, which means a house in the $300,000 is a highly sought-after asset.
To compensate for the seller’s market and high competition, make sure you and your realtor understand what you can afford and what you want in a house to ensure a quick home search.
Availability
The federal bank of St. Louis calculates the monthly supply of houses by using a ratio of houses for-sale to houses sold. The statistic is calculated to identify the investor of for-sale houses in the U.S. and has indicated since September of 2020 houses have become consistently more available.
At the start of the pandemic the supply of houses for sale dropped drastically. Since September of 2020 houses have gone up for sale at a higher rate than they are being sold. For the price range of $300,000, houses are becoming more available by the month.
The housing availability, however, varies based on an individual’s location. For example, there are likely more houses for sale for $300,000 in Texas than in California.
Location
One of the largest price adjusters for houses is the location of the house. Not only will each state have different land values, property taxes, and cost of living, but also different income taxes. Because qualifying for a mortgage is based on how much of your monthly income will be spent on mortgage payments, state with high income taxes allow you to qualify for less money on loans.
For example, Florida has no state income tax allowing prospective buyers to spend more on a mortgage payment than they would in New York, which has a state income tax of 4% to 8% of income. Income tax may be the difference between owning the home you dream of or simply owning the house you can afford.
Beyond income tax, land value varies state to state. Using the same example, $300,000 for a house in Florida would likely get you a home with 2 to 4 bedrooms and 1 to 2 bathrooms. In New York in a favorable area, however, $300,000 would likely allow you to purchase an apartment or a small home with 1 to 2 bedrooms and 1 to 2 bathrooms.
Neighborhood
Much like different states, different neighborhoods will have different costs and land values. In a neighborhood with low crime, good education, and public service, and plenty of leisure and commerce opportunities houses will be much more expensive than a neighborhood with the opposite.
Land value is often based on the value of houses surrounding the one you are looking at. Because of this many neighborhoods and subdivisions operate under a Homeowner’s Association, or HOA. HOA will charge a monthly fee to ensure land value in a given neighborhood does not drop as a result of surrounding properties. Payments vary but usually are between $200 to $300 a month.
HOAs will ensure that no homeowner in an area will make drastic changes to their property that will result in a decrease of land value for neighbors. HOAs will cover varying expenses based on your neighborhood but usually cover city services, insurance for common or community areas, lawn care, pest control, maintenance and repairs of shared structures, amenities, and services.
Before purchasing a home look into the HOA in that area, if one does exist.
Hidden Costs
With any major purchase there will always be hidden fees or fees that are less known to the common home buyer. Common hidden costs include realtor costs, closing costs, earnest money, escrow payments, school district taxes, and moving costs.
Earnest money is essentially a security deposit on a house. Before any paperwork is filed an earnest payment will be required to ensure to the seller and the parties involved that you are serious about purchasing the property. Much like security deposits, if the transaction is successful the buyer will get their earnest deposit back.
An escrow is a money account that your mortgage payments will be taken from. When opening an escrow account many lenders will require you to deposit a certain amount of money into the account.
Moving costs will vary depending on how far you need to move your possessions. In many cases a moving company or renting a moving vehicle is a necessary expense involved in moving to a new location.
School district fees are exactly that. Depending on the area your new house is in, the local school district will tax a portion of your income. For a family with small children, school taxes are, in many cases, imposed as they would like to see their children go to good schools. If you do not have children, however, you should be aware of the school taxes associated with the area you are looking to move to.
Hiring a Realtor
The internet has a plethora of resources for identifying and researching house listings allowing individuals to find houses to purchase. Although any person has access to these up-to-date databases, it is still recommended to onboard a realtor to utilize their expertise in your home buying experience. Not only can realtors find listings you may not have, but they will answer any questions you have and aid you through the home buying process.
Although they can be a major asset in home buying, realtors do come at a fee. The standard commission rate for real estate agents is 6% of the home price. The commission is usually split between the buyer’s and seller’s agent. The commission real estate agents receive is not included in a house’s price and will be an additional fee for buyers to consider.
Finding the right real estate agent will optimize your search for a new house and will allow you access to their connections and expertise. Real estate agents will also aid you in the negotiation process.
Request Inspections
Before you sign anything for a house it is important to make sure the house is safe for you to live in. In order to accomplish this, prospective home buyers should always request an inspection of the house in which they are interested.
Following an inspection two things may occur: the inspection could go smoothly, and the buying process can continue, or the inspection produces problems with the house. If problems are found in the house, the buyer can request the seller either fix them before moving further, or discount the property based on the inspection information.
Most importantly, home inspections prior to buying a property will scan for dangerous living conditions such as a house containing mold, radon, or carbon monoxide.
What to Expect for $300,000
The average size of a $300,000 home is 2,000 sq ft. but will vary based on the location of the house. Depending on what time of living space you are looking for will change the size of the home you can find.
Stretching your money for the best deal can be an arduous task when looking for high square footage in a house. Instead look for a quality house in a good neighborhood.
The size of the house you can buy for $300,000 depends on a variety of financial, geographical, and economic factors, but using the information described above, your own research, and the expertise of those around you can find the home of your dreams for $300,000.
