Are You Ready to Buy a Home? 9 Questions to Help You Decide
Buying a house for the first time is a big commitment for anyone. Homeownership is the largest financial decision most people will ever make. There are many things to consider, but are you really ready to buy a home?
We look at the questions you need to ask yourself so you can better understand if you are ready to buy a home.
Do You Have Money Saved for a Down Payment?
While there are a few government programs that allow a 0% down payment, this won’t be the case for most home purchases. And the more money you have for a down payment, the better terms you will get on the mortgage.
Ideally, a 20% down payment will get you the best interest rates and lower fees, but you don’t actually need to find that amount to purchase. Depending on the type of mortgage you are looking at, you could afford to buy a home with only 3% and 5% of the purchase price saved for the down payment.
With FHA loans, you are going to need 3.5% as a down payment as a minimum. Though the more you can pay upfront as a down payment, the less interest there is to pay. With a 20% down payment, you can avoid paying private mortgage insurance on the loan.
How Good is Your Credit Score?
If you’re getting ready to buy a home your credit score will matter. However, if you don’t have the greatest credit score in the world, you could still qualify for a mortgage.
Even if your credit score is around 600 you could still get a loan to buy a home.
However, before you start looking for a loan, it is a great idea to do everything you can to improve your credit score. With a higher credit score, you will find it easier to get a mortgage, and the terms of the loan will be better.
Do You Have Money for Closing Costs and Other Expenses?
It isn’t just the down payment you have to worry about, there are closing costs to consider. When you purchase a home, you will have to pay closing fees that include legal fees, taxes, and lender fees, among other expenses. These can total between 2% and 5% of the purchase price of the home and have to be paid at closing.
You will have to pay for the expense of moving into your new home as well, and there could be other expenses. You might find that there are some urgent repairs to pay for, like a water leak, for example. If you don’t have an emergency fund to cover such expenses, you could find yourself in a lot of trouble before moving in.How do you know if you are ready to buy a home? Here are 9 questions that will help you determine if homeownership is the right decision for you. #homebuying #realestate
Do You Have Control of Your Debts?
While you don’t need to be completely free of debts to purchase a home, you do need to be able to afford them. You need to cover your debt payments along with your mortgage payments, and if this is impossible, you might not be able to get the loan you expect.
Your lender looks at your debt to income ratio, and if your debt to income ratio is 43% or more, you should be fine. Debt to income ratio can be found by adding up all of your monthly bills and dividing it by your income before taxes are taken out. This is an indication of how much of your income goes to paying your debts and shows the lender how much you can afford to repay.
Can You Afford the Monthly Expenses of Owning a Home?
You don’t only have to be able to cover the mortgage payments each month, there are other expenses as well. You have to pay your utilities, homeowners association fees, property taxes, and insurance, as well as things like internet and cable.
You need to find out what these expenses will be for the home you are considering buying, and then work out if you can afford them based on your income. If you make a mistake here, you could find you don’t have enough money to cover basic necessities.
Simply using a mortgage calculator won’t take into consideration these extra expenses and could lead to you overextending your finances.
It can appear tempting to stretch your finances to their limit and buy the biggest home you can afford, though it could lead to trouble down the line.
Is Your Income Stable?
Financial stability should ensure that you will be able to continue to pay the mortgage going forwards. While it is normally impossible to predict losing your job ahead of time, such a situation can result in ending up in foreclosure if you don’t have enough equity to sell. If you don’t have a stable income, and you have some doubts over whether the money is going to continue coming in, you might be better off waiting until the situation stabilizes for you.
Will You Want to Stay in the Property for a Long Time?
Living in the home for longer is better for your long-term financial situation. It will mean you can build more equity in the home, and then make more when you sell it. If you aren’t sure about the area you are going to live in, it might be better to wait until you are or find an area that you are happier with.
Is the Home Big Enough?
Space is an important factor, and if you can’t afford to buy a home that meets your needs, perhaps you will be better off waiting.
Are You in the Right Place in Your Life?
Does the idea of settling down seem very scary, or are you ready? If you aren’t confident that you want to remain in the area for at least the next 5 years, perhaps you aren’t ready to settle down. And if you don’t want to settle down yet, you aren’t really ready to purchase.
Making the big leap into the housing market is a massive financial commitment, and you need to make sure you are ready to buy a home. Only you can decide if you are in the right financial, lifestyle, employment, and long-term situation to be ready to buy.
If after going through our questions you still aren’t entirely sure if you’re ready to buy a home, you can always check the financial aspects with your potential lender. A real estate agent can help with more advice if you still have concerns.
One last thing to think about and keep in mind, you will have to pay for housing whether you decide to buy or continue to rent. Sometimes it’s more cost-effective to buy a home. So even if you don’t feel like you’re ready to buy a home it might be the best move, which is why both options should be weighed and investigated.
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About the Author
Top Wellington Realtor, Michelle Gibson, wrote: “Are You Ready to Buy a Home? 9 Questions to Help You Decide”
Michelle has been specializing in residential real estate since 2001 throughout Wellington Florida and the surrounding area. Whether you’re looking to buy, sell, or rent she will guide you through the entire real estate transaction. If you’re ready to put Michelle’s knowledge and expertise to work for you call or e-mail her today.
Areas of service include Wellington, Lake Worth, Royal Palm Beach, Boynton Beach, West Palm Beach, Loxahatchee, Greenacres, and more.