In real estate, a common catch phrase is “location, location, location.” A home in a great location may be more likely to hold its value, while also placing you closer to local attractions. Yet, you can’t overlook the importance of price when choosing a home. You don’t want to overextend yourself, especially when heading into your retirement years. So which is more important: location or price?
Location
To begin, what does a great location actually mean? There are several different location-based factors that influence a home’s value. Some will be more important to you than others, but they are all worth considering. First, how centralized is the home? Homes that are conveniently located near shops, restaurants, recreation centers, and other amenities tend to be more desirable. Walkability and easy access to public transportation are valuable assets.
The neighborhood itself is another important part of a home’s location. This is especially true when shopping in active adult communities, where included amenities, like swimming pools and recreation centers, are a large part of the buying decision. In addition to amenities, consider the condition of the neighborhood, its setting and its proximity to major roadways. Within the neighborhood, other location-based factors include the size of the lot, the position of the home on the lot and the views from the home.
While you might want to live in a community that is close to major roadways, you would be better off choosing a home that sits along a lake or golf course, instead of directly backing up to one of those busy roads.
Price
Of course, the homes with the most desirable locations are more likely to come with higher price tags and you don’t want to overextend yourself. The last thing you need in retirement is to owe mortgage payments that you can’t really afford. To set your house-buying budget, you should always consider your debt-to-income (DTI) ratio. Your DTI compares your monthly expenses against your monthly pre-tax income and it is a tool lenders commonly use when you apply for a loan. Essentially, if you made $2,000 each month and your monthly expenses totaled $200, you would have a DTI of 10 percent. A lower DTI is better because it leaves you with more money to either spend or put into savings each month.
When it comes to housing, there are different recommended guidelines for an acceptable DTI, but a conservative estimate would be staying below 28 percent. If you are planning to buy a home with cash, instead of taking out a mortgage, you want to carefully calculate how the cost of your home may affect your investments. The more money you spend on your home, the less you will have to keep earning money for the future.
While price and location are important factors in buying a home, you have to consider both when making your decision. For the best results, it’s often a good idea to start with price. Calculate how much you can comfortably afford to spend on a home and make that your firm budget. Once you’ve established how much you can afford to spend, you can consider location-based factors to make the most of your investment.
