If you’re considering buying property, you should know a lot of things before making the decision. A mortgage is very different from a lease, and not just because you’re the one responsible for maintaining the property. The financial impact is significantly different.
Mortgages tend to have a significant enough impact that it can be difficult for lower-income people to buy property, even if they can afford the home.
One significant financial change is a drop in your credit score. No matter how good your mortgage, signing a mortgage contract leads to a drop in your score anywhere between 11 and 40 points. That’s because of the sudden amount of debt you’ve accrued.
Studies have shown that within about nine months, you’ll recover your previous score. Following that, you’ll get a credit score boost every time you make your monthly payment on time.
You’ll also need to pay more in costs for your home. In addition to everything you had to handle as a renter, you have to consider the maintenance, improvements, and general upkeep. This covers pest control, lawn care, air filters, furnace maintenance, and other home maintenance expenses.
You’ll need to pay property taxes, which can be hefty, depending on your state. Some people might need to pay dues to their homeowner’s association.
The down payment for a house tends to be significant, even if you go with the most minimum option. After you make the purchase, you’ll need to be careful to build your savings back up. Savings are vital for potential emergencies, expenses, and the increased month-to-month costs of living.
You’ll need to be aware that there is never an option to pay your mortgage late. Many leases will have leeway with rent payments and a certain amount of rent forgiveness. But if you miss your mortgage payment, there will be catastrophic consequences for your finances.
Many lenders offer grace periods of a week or two following the payment due date. But if you’re late with your payment, you’ll be subject to late fees. The payment will also impact your credit score. You only have to miss three months of payments to be in danger of having your property foreclosed upon.