There are a lot of factors that go into the decision to buy a home. It may be the American dream, and people keep saying that this is the time to buy, but how do you know if you are ready? Here are some things to think about and questions to ask yourself before taking the plunge. If you do determine that you are ready to become a homeowner, please call me, I would be happy to help!
Can you afford to buy?
A good way to figure out how much you can afford to spend is to first look at what you are already spending. What is your rent right now? Do your finances feel tight? Do you wish your rent was less or are you comfortable with where it is right now? If you have been paying say, $1000 in rent every month for years, and are comfortable with that, then you could probably afford to pay that for a house just as easily. Make a budget, find out where your money is really going and how much you really spend. MSN has a good Mortgage Calculator that will help you figure out how much home you can afford, and your mortgage specialist will also be a great source of help on this.
Do you have money saved up for closing costs?
Buying a house usually requires that you have some cash on hand to bring to the closing table, especially with mortgage lenders tightening their restrictions on 100% loans. You will probably need to pay up front for homeowner’s insurance, inspections, and a good down payment for the home.
What about other expenses that homeownership brings?
Once you pay your closing costs, and actually own the home, other expenses will come up and you need to be prepared for those. You may need to buy appliances or furniture for your new home, pay Homeowner’s Association dues, make repairs, or replace flooring. Maintenence is very important to keep things in your home running as they should, and there won’t be a landlord to call if the toilet starts to leak or something else goes wrong. What about the lawn? You probably didn’t have a lawn to mow if you rented an apartment, so now you may need to buy a lawnmower. There are some tax savings for home ownership, but there are also these extra expenses to consider.
Do you know your credit score?
Having your credit in order before you try to get approved for a home loan is very important. Check your credit reports from all 3 credit bureaus, and be sure they are correct. Pay down your credit cards if possible, and if your credit score is in trouble, now might not be the right time for you. Talking with your mortgage rep. will help you understand your credit score and how it effects your ability to get a mortgage. They can also usually suggest ways to make your credit score better, but it will take work. If you are unwilling to work for it, you probably aren’t ready to own a home yet. Here is a great article on Realtor.com about understanding your credit.
Do you have a steady job history?
To get a mortgage, it is important that you have been at your job for 2-3 years to show a steady and solid work history. The bank is about to give you a large amount of money, they want to see that you will be able to pay it back. If you have taken a long break from working for some reason, you may have a hard time getting a loan. One person I know moved from California where homes are very expensive, to Indiana. He sold his home in California for $400,000, paid cash for his $130,000 Indiana home, and then took a year off work because he had so much extra cash on hand. When it came time to buy a larger home for his family, he decided to rent his current home to someone else and get a mortgage for a 2nd home to live in. Unfortunately, not having a job for the past year made him unable to get a home loan, even though he had lived well with no problems for the past year.
Have you spoken to a mortgage lender/bank?
Talk to a loan expert about what you can afford and if you can even get a loan before you get too excited about looking at homes. You might want to see what you can get for your buck, but if you can’t get the bucks to begin with, you have wasted your time. It is also an inconvenience to the seller to have to clean their home, and go somewhere else while it is shown, they get quite upset to find out that you can’t even get a loan.
How long do you plan on staying in your new home?
One great thing about renting is that you can move out at almost any time, you are not stuck in one place. Buying a home has other great benefits, but it is not a wise move if you don’t plan on staying for at least 3-5 years. If you sell a home within 2 years of buying it, you may be required to pay capital gains taxes, and the chances of having a good bit of equity by then is slim. A home is a long-term investment. If you don’t stay long enough, you may end up having to bring money to closing when you SELL it too! If you plan to move again in 2-3 years, it is probably better to rent and work on paying down your other debts instead of buying.
More good resources on this topic: