The classic “American Dream” involves a white picket fence, a two-story house and two kids.
While you don’t have much control over the children in this story, you do have the ability to 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 before you start thinking about buying a home, you need to be certain that your finances are in order.
First, consider how much credit card debt you have, and then consider 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 renting and the furnace goes out, simply 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 it can be expensive, so make sure 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 make the move to home ownership when you are as sure as you can be that you are staying 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, then don’t be ashamed to wait a bit.
Do these considerations paint a “doom and gloom” story? Absolutely not!
If your finances are ready and you can commit to sticking with your home for a few years, then you are ready to enjoy the benefits of home ownership.
Take a little time to ensure you truly are ready before jumping on the bandwagon, so you can enjoy owning your new home, rather than living in a home that owns you!