Owning your own home comes with some fantastic benefits. Being able to have the assurance that your monthly housing costs will not go up each year is one of the biggest selling points. Having the opportunity to build equity is another. When your money is going into your investment and you can get that money back down the line, it is very tempting to take the plunge into buying.
But there are other variables of owning a home that might not be immediately apparent. The added responsibility of having to repair or place whatever whatever breaks and additional maintenance costs for outdoor spaces often get overlooked by first time buyers when budgeting. Before you start your foray into house hunting, it is important to ask yourself these questions to determine whether you are ready to be a home owner:
Do you know who much you can afford?
This is the time for you to complete an exhaustive audit of your finances to determine what type of expenditures you have on a monthly basis. Every dime should be accounted for – current rent, groceries, shopping, dining out, transportation, medical bills, credit card payments, student loans, car payments, etc. If there is any money going out from your paycheck each month, add it to a spreadsheet alongside the amount of money you have coming in.
When it is time to sit down with a loan officer to figure out which mortgage is best for you, you should have your monthly budget close at hand. Often times, first time buyers will be approved for more money than they can truly afford monthly, leaving them house poor. If the loan officer tells you they can give you X amount of dollars but your monthly budget only allows for Y amount of dollars to be spent on your mortgage, don’t be tempted to spend more than Y dollars. The money doesn’t magically appear in your budget once you are approved for a mortgage.
Do you have a down payment?
The fear that you must have 20% down in order to buy a home or to get approved for a loan is something that many first time buyers assume. In reality, there are loans available to buyers with 3.5% or even 0% money down. There are a variety of loan types out there that home buyers can take advantage of and you will certainly find one that will meet your personal, financial needs. You can learn more about the different loan types in our Mortgage 101 blog.
For those that are able to save up a 20% down payment, you will be able to bypass having to pay for private mortgage insurance each month. Even though it is not a requirement to make a 20% down payment, the more money you can save before you buy, the better off you will be. Having a nest egg ready for home repairs or yard maintenance is smart financial planning.
Do you have money set aside for after closing needs?
A common mistake that home buyers make is emptying out their savings when purchasing a home and putting all of their liquid assets towards the closing. Have a three to six-month savings in your account at any given time is important as a new home owner. Once your new home is official yours, there will inevitably be maintenance and upkeep that is now your financial responsibility. If you have depleted all of your savings during your home purchase, you will find yourself struggling to complete basic maintenance like appliance repairs or landscaping.
Do you know your credit score?
With credit, the goal is always to be higher. The higher your score, the better your terms and rates will be from lenders. You can learn more about what your credit score means and what factors impact your score from our blog, Unlocking the Secrets to Your Financial Future.
Do you know where you will be in five years?
Timing is always an important factor to consider when purchasing a home. If you are the type of person that cannot commit to a specific area for more than a couple of years, then purchasing a home may not be the best decision for you just yet. Having to invest in a down payment, taxes, closing costs, and upkeep on a home may not pay off when it comes time to sell for those that are only keeping a property for less than five years. Make sure you pick a location in which you are willing to put down roots.
Every person has their own unique motivations for buying a home but it is important not to overlook some of the drawbacks as well. Making a pros and cons list is always a good place to start when you think you are ready to buy. If buying a home will improve your quality of life and you are ready to make the financial investment, contact our team at Better Homes and Gardens Real Estate Metro Brokers by calling 404.843.2500 so our agents can help you find your dream home.
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