8 Signs You're Ready to Buy a House

How do you know when you’re ready to buy a home? This checklist will make the question black and white for the first-time home buyer. These eight steps must be settled before a first-time home buyer considers buying a house.

 

1. Establish a budget and know how to use it-This step focuses on money management skills, because when owning a new home, money management is a must. First, make yourself a budget (if you don’t already have one) and know where the money comes from and where it goes every month. Knowing this will tell you what is affordable and what isn’t.

 

After your financial situation is sorted, create yourself a mock budget for owning   a home.  Find out the cost of houses in the area, and the monthly mortgage rate. Next add in higher utility bills, homeowners insurance, property taxes, homeowners association fees, maintenance and repair costs. Consider adding in commuting costs if the commute to work is rather long. If this mock budget doesn’t balance, and within a few months your finances are dwindling, then it is not the time to purchase a home. Do not buy!

 

2. Have a sizeable down payment- Normally a 20% down payment of the house price will be enough to get started. It is possible to get around that 20%, but those options will cost greatly. In a slow housing market, the down payment will establish some equity incase an unprecedented move is in the future.

 

3. Have a reliable source of income- Owning a home is a long-term investment requiring a consistent flow of cash to pay for monthly payments and other expenses. If you’re in school, act as if you’re going back to school, have a family, and an unreliable job. Once a reliable job is in place, calculate if the payments could be paid in six months, or six years from now. Some couples can afford a house when they’re both working, but when a child comes and one has to quit working, finances begin to get difficult.

 

4. Have an emergency savings fund- Try and save enough cash to cover six months of living expenses; doing this will get you closer to being prepared for owning a home. If anything disrupts your steady income, a little cash must be saved until you get out of the slump. Say an illness, natural disaster, or unexpected layoff occurs and your income comes to a halt, you need enough money to pay your mortgage until you get back on your feet.

 

5. Have your debts under control- lenders like to make sure you'll have enough money each month to pay your obligations. So before they'll give you a mortgage, they take a look at your so-called debt-to-income ratio. They want to make sure your monthly housing costs -- including principal, interest, taxes and insurance -- will consume no more than 33% of your monthly gross income; and that your total debt payments, including your mortgage, credit cards, student loans and auto loans, will remain below 38% of your total pay. So if you have debts, it is best to pay them before applying for a loan so you can get as much money as you need. Also avoid taking on any new debt six months to a year prior to the purchase of your home.

 

6. Have a good credit report- Your credit score doesn’t have to be perfect in today’s market to buy a house, but it is preferred to have a good score to reduce your interest rate and lower monthly mortgage payments. The government allows you to check your credit score once a year for free, so check it and make sure no mistakes have been made.

 

Any missed payments or other black marks could tell lenders you’re sloppy and unreliable to pay their money back. Bad credit isn’t the biggest issue to worry about. Just make sure you have credit history; take out a credit card a year before you plan to purchase a house.  

 

7. You can make a long-term commitment- When buying a house you should plan to stay at least three to five years. Selling your house before then makes it possible to lose money on the deal. If no profit is turned, capital gains taxes must be paid if the house isn’t lived in for two years. The length of your stay becomes important now that home appreciation is slowing from its previous pace. If you are skeptical about how long you will stay in that place, it is probably best to rent. Renting isn’t always bad, because there are times in your life that renting makes more sense than buying.

 

8. Prepare to become your own landlord- Don’t buy because you can, buy because you are ready to live the lifestyle. Buying a house comes with many new costs and responsibilities, like fixing an appliance when it is broke instead of calling your landlord to come fix it. Another responsibility is upkeep (yard work, shoveling driveways etc.). A major question you will have to ask yourself is, “Do I have to energy, time, and desire to maintain the property? Will I have enough money to buy a lawnmower, or hiring an occasional plumber?”

 

These steps are important ones to ask yourself before committing and buying a home. If even one of these steps cannot but met, you should wait a little longer to buy. 

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