The classic “American Dream” involves a picket fence, a two-story house with a porch, and a couple of kids.
While you don’t have much control over the children in this story, you can add the house. When everyone around you is buying a home, you may feel tempted to jump on the bandwagon and get one, too.
Before you do, take some time to make sure you are ready.
Consider Your Credit History
It should go without saying, but you must ensure your finances are in order before buying a home.
First, consider how much credit card debt you have, and then feel your other loans, like car and student loans. If you are drowning in debt or have a low credit score, even if there is a “good” reason, you are not ready to buy a home.
Consider Your Down Payment
No matter what type of mortgage you get, unless you happen to be qualified for one of the rare no-down-payment options, like the VA loan, you will need a down payment.
You don’t need to save 20 percent, but you will need at least 3.5 percent.
You will also need the money to cover your closing costs when you purchase the home. In other words, you won’t be able to buy a house until you can save several thousand dollars.
Consider the Extra Costs
Now, you may have the money set aside for the down payment, and you may be able to afford the mortgage payment, including the cost of insurance and taxes, but what about the rest of the costs of home ownership?
If you are renting and the furnace goes out, tell the landlord and get a new one.
If you buy a home and the furnace goes out a week after you move in, you will be out several thousands of dollars for a new one, whether or not you spent everything on your down payment.
Maintenance is just one type of cost. Your utilities may increase, and you may have homeowner’s association dues. Owning a home is rewarding but can be expensive, so ensure you have the funds for those costs.
Consider the Practical Side
When you buy a home, you are settling down for a while. While you don’t know the future, you should move to home ownership when you can stay put for a few years.
It can take about five years to recoup your closing costs and the costs of buying a home through increased equity. If you aren’t ready to commit to many years in a home, don’t be ashamed to wait a bit.
Do these considerations paint a “doom and gloom” story? Not!
If your finances are ready and you can commit to sticking with your home for a few years, you are prepared to enjoy the benefits of home ownership.
Take a little time to ensure you’re ready before jumping on the bandwagon so you can enjoy owning your new home rather than living in a house that owns you!