Financial Factors to Consider when Buying a Home

June 14, 2018 12:00 am

Christine H. Canapari, ChFC®

Senior Financial Advisor & Manager of Client Services

Most people will agree that the top consideration in buying a home is location, and that is true for a number of reasons.  Everyone wants to live in a safe and desirable area suitable to their lifestyle.  For some the location may be conveniently located to their workplace, and for others it may offer quality school systems for their children.  The price of the home will be based largely on the demand for these features in addition to, of course, the size and condition of the home itself.  There are also a number of other financial factors that should be considered, but sometimes get overlooked, in the process of a home purchase.

Renovation Budget

If you decide to purchase a home that needs some upgrading or renovating, you should establish a budget and create your funding plan prior to purchase.  Major repairs or upgrades may allow you to negotiate the sale price lower if you agree to handle the issues yourself.  If time allows, you should bring in your contractor(s) to get quotes on how much the work will cost and how long it will take to complete.  It will be important to have the funding available for renovations that are required immediately to either make the house safe or livable.  Other renovations, that are not urgent but still desired, could possibly be completed down the road after you save up for them.  It is helpful to establish a timeline of expected dates of completion of the work that needs to be done.  During the buying process, it can be exciting to talk about potential renovations to the home.  It is imperative to investigate actual costs of these renovations to be sure they are within your budget.

Real Estate Taxes
Every city or town levies its own rate of property tax on the real estate that you own there, and the rates can and do vary.   These rates, of course, are dependent on a number of factors such as the population of the city or town, the services provided to residents, the school systems and so on.  For example, it is common for parents to buy a home in a particular town because of the quality of the school system even though their real estate taxes are higher than in other towns.  Others will choose to live in a town with less expensive real estate taxes but opt to send their children to private school.  With regard to services, some towns do not provide trash collection as part of your real estate tax assessment so you would need to find your own provider and pay them on an individual basis.  So understanding what your taxes cover versus what you will pay out of pocket is key when choosing a location.

Property Taxes on Motor Vehicles (Excise Tax)
Another item to consider in choosing your home location is property tax charged on motor vehicles.  This tax is charged in addition to your real estate taxes mostly depending on the value and age of your vehicles.  Usually the newer and more valuable your vehicle, the higher the tax owed.  However, these tax rates are again town or city determined and can vary widely as they are another form of creating revenue.  There has been much debate recently over the valuations of vehicles in certain cities in Rhode Island because residents feel they are being charged excessive amounts of tax on a depreciating asset.  There is current legislation in the works to phase out the car tax in RI by 2024.

Car Insurance
Car insurance rates can also fluctuate extensively depending on where you live.  Without taking your personal driving record into account, rates will tend to be higher in cities and areas where crime is more prevalent.   The differences in price can be quite dramatic.  I have personally been told by two separate insurance companies that my premium would be much lower (in the range of 20-30%) if I moved less than a half mile into the next town.  Car insurance can be a major expense for many especially in multi driver households, so it is worth exploring its cost prior to choosing your location.

These are some of the major financial considerations home buyers should investigate when choosing a location in addition to, of course, the price of the home.  Often there will be tradeoffs such as higher real estate taxes but lower car insurance rates.  By viewing all factors in combination, you can better determine if the home and its location are right for you.

Chrissy Canapari, ChFC® serves as Senior Financial Advisor and Manager of Client Services at StrategicPoint Investment Advisors in Providence and East Greenwich. You can e-mail her at ccanapari@strategicpoint.com.

The information contained in this post is not intended as investment, tax or legal advice. StrategicPoint Investment Advisors assumes no responsibility for any action or inaction resulting from the contents herein. Chrissy’s opinions and comments expressed on this site are her own and may not accurately reflect those of the firm. Third party content does not reflect the view of the firm and is not reviewed for completeness or accuracy. It is provided for ease of reference.