Gone are the depressing mid-recession days when owning your home was a burden. Now everywhere you turn someone is buying their first house or upgrading to the next house. And since the economy is booming again, chances are you’ve wondered if it’s the right time for you to buy too.
But just because everyone is running to buy right now, it doesn’t mean you should march over to your bank and apply for a mortgage.
Even if your landlord is planning to raise your rent again, you’re tired of switching apartments every year, or feel you are throwing away money on rent, there are a few things to ask yourself before deciding if buying a house right now is right for you.
Why do you want a house?
Sometimes we aren’t even sure why we do the things we do.
Are you buying because all your friends are? How about because you think it’s the logical next step? Tired of paying rent? need a specific school district? Or maybe you are ready to build real wealth through real estate.
Your reason for buying a home greatly influences how much you spend, what type of home you buy and what terms to use.
For example, if buying to create a cash flow or live rent-free, then a multi-family might be a great choice to buy. If buying for the kids, then the school district is a big driver to purchasing. Take the time to honestly think about your motivations. Because a great house can be a bad buy if it’s not in line with your goals.
Are you ready to be in one place semi-permanently?
Buying a home doesn’t mean that you’re chained to the house, city, and state forever.
But it isn’t a short-term buy you take lightly either. The loan can last anywhere from 15 to 30 years and you invest a large chunk of cash up front for down payments, closing costs, inspection fees etc.
Even if you plan to make it back over time in appreciation, it usually takes years paying down the mortgage and accumulating equity before you ‘make your money back’ in a sale. So before you buy, make sure you want to set up roots or at least want to own a property in that neighborhood for at least a few years. Preferably 7 – 10 to recoup closing costs.
How do you feel about paying for maintenance?
When you are renting, all maintenance to the property is out of your hands, doesn’t cost a dime, and is only a phone call away to fix. The AC gets busted? Call the property manager. Saw a cockroach scurry by your front door? Call the property manager. Nothing that breaks in the property is your job or cost to fix.
But when you own the property, all expenses are yours to take care of and pay for. Even if you are super handy, there are some tasks that you will not be able to or want to fix. Like electrical, and plumbing.
Do you have some slack in your current budget where you can save for a house maintenance fund to cover repair expenses? You might think that your appliances look in good shape, but maintenance follows Murphy’s law. It’s almost guaranteed to break at the worse time of the year.
So if the thought of forking over $5,000 for a new A/C makes you want to throw up, then maybe you want to think about it some more and see if you start feeling comfortable with the idea.
Is your salary secured?
Buying your home then one month later, losing your income to pay the mortgage is probably the worst nightmare to many people.
No one knows the future of their job.
But if you are uncertain about your employment status or don’t have an unsteady income stream, then you might want to give it a few months before buying. This gives you time to build up your savings reserves to protect yourself in case the worst happens.
Another litmus test for house buying is testing out the new budget with your current salary. If you can’t make the payments without having to dip into credit cards or seriously impacting your quality of life then your salary isn’t ready.
Do you have a down payment and some for fees?
Have you saved up at least 10%, preferably between 20 to 25% for debt? Banks today offer loans with as little down as 3%, but the fees don’t stop there.
As before stated, there are quite a few out of pocket costs that could drive up your out of pocket to several thousand beyond the down payment.
And that doesn’t even include moving costs, new furniture, cleaning costs etc. Having saved up 10% or double the down payment it less like you end up house poor. I.E. lots of houses, no furniture, and no money.
Is your credit together?
It’s rare to find folks who can buy a property all cash. So if you are trying to buy a home you’ll want to start working on getting your credit in shape at least a few months before you actually want to buy. Paying down credit card debt, consolidating loans where needed etc. will all help with improving your credit score, getting you better rates, loan terms and ultimately paying less.
Do you know how to buy right?
Most home buyers don’t buy houses often enough to know a lot about buying properties. Which sucks, because buying a house is not for amateurs at all. Knowing how to buy a house right is key to avoid overpaying, ending up house poor, or with a money pit home.
You need to have a clear strategy for what to look for and not be swayed by your emotions if you want to be a homeowner.
Feeling rushed or get suckered into falling in love with a property you can’t afford is a recipe for buyers remorse.
Ignoring the red flags because you think it’s a great house, or getting worked up in negotiations and overpay because you’re tired of looking won’t help you at all. Be thoughtful when picking a realtor to ensure you get the insider help, but also take the time to educate yourself on what you should buy before you start looking.
Are you ready to buy?
Your home may not be considered an investment, but it certainly is an asset and can be used as a set to start building wealth but it’s not the only way.
The decision to buy a home is highly personal. Only you can determine if it’s the right choice and the right time to buy. Don’t allow yourself to be pressured by anyone.
Always decide with eyes wide open.
Next Steps? Be Informed. Stay Empowered.
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