For decades buying a home has been a significant part of the American dream. After all, for many people, owning your own home is a sign that you’ve made it and become a successful adult. If you are currently dreaming about finally purchasing a home, there are a few things you should consider first. Sit down, ask yourself the following questions, and answer them honestly.
Does buying a house make sense?
Many people believe that buying a house makes financial sense and in some cases, it does. For example, if you plan to stay in your house for years to come or at least until you reach the “breakeven horizon” before selling it, this is a financially sound plan. However, if you plan to move in a few years, renting may be your better option.
To determine your breakeven horizon, or how many years it will take for the cost of buying to equal the cost of renting, use Realtor’s Buy vs. Rent calculator.
Are you ready from a financial standpoint?
In addition to putting down a down payment and making mortgage payments for the next 5 to 30 years (or longer if you end up refinancing), there will be plenty of other costs as well, such as maintenance, taxes, and insurance. Here’s a breakdown of the two big-ticket items when it comes to home ownership.
1) Down payment: Meant to prove to lenders that you are ready to enter the home ownership game and to put some equity into the property, your down payment is a lump sum you pay at closing. While the amount needed varies, many lenders prefer a 20% down payment. This is also the best way to get a good interest rate. However, it is possible to find lenders who require as little as 3% down. Some people may be able to get the down payment as a gift from friends and family, but this isn’t always the case. Your other option is to take out a loan. In this case, the lender will add the monthly payment amount to your potential mortgage payment and other monthly payments to determine your debt-to-income ratio. Typically, to qualify for a home loan, this can’t exceed 43%.
2) Monthly mortgage payments: Today, most mortgage payments include the principle and interest (both amortized over the life of the loan), as well as pro-rated property taxes and homeowners insurance. This is the amount you will be responsible for paying every single month until the loan is paid in full. Provided you are employed and have reasonable credit, most lenders will give you a loan.
Can you handle the maintenance?
Obviously, your home is going to need routine repair and maintenance, which means you will need to have some basic handyman skills. After all, you can’t call your landlord and you don’t want to have to pay a professional for every little thing. You should be able to do the following:
- Clean gutters of leaves and debris
- Change a furnace filter
- Change the batteries in a smoke detector, as well as finding the correct size and changing lightbulbs
- Change a toilet flapper
- Locate the studs needed to hang shelves
- Know where to find and how to flip breaker switches
- Paint a room
Are you emotionally ready for home ownership?
As your biggest investment, homeownership is a huge commitment. This begins when choosing a home. For example, picking a real estate agent to assist you and a neighborhood you feel comfortable living in for years to come. You’re also going to have to commit to spending some of your free time, especially on the weekends, maintaining your home. This includes cutting the grass, cleaning out the gutters, sealing decks and counters, cleaning the carpet, and much, much more. Is this something you are ready to do?
Now that you’ve answered the questions above, it is time to decide. Is buying or renting a home right for you?If you think buying is the right for you I can help you navigate the process from lending approval all the way to closing. Call or email me for a free consultation.
If you think buying is right for you I can help you navigate the process from lending approval all the way to closing. Call me or email me so we can get you into the home of your dreams.
PS: If you are a first-time homebuyer you may qualify for downpayment assistance.