There comes a point in time when renting an apartment with your buds just doesn’t cut it anymore. The constant stream of people in the house and labeling your food gets annoying after a while. Maybe it’s time to think about your own place. But how do you know when you’re ready to buy a house?
Buying a home is probably the biggest investment you’ll ever make and knowing if you’re ready to take this huge step is tough. So, before you start fantasizing about where you’re going to display your collection of salt and pepper shakers, take a second to ask yourself if buying a home is the right move for you.
Is the Monthly Payment Really Cheaper Than Rent?
Before looking at new homes, look at your personal finances and figure out what you can afford as a monthly payment. Don’t forget to include utilities, home insurance, property taxes, possible Home Owners Association fees, which will most likely increase when you move into a larger home, and potential private mortgage insurance (PMI). Your total housing expenses should not exceed 28 percent of your monthly gross income.
Need help figuring out how much you can realistically afford? Check out our four budgeting ideas to figure out how much home you can afford.
How Much Debt Do You Currently Have?
Before you even start looking at homes, you need to take a hard look at your finances. If you’re constantly using your credit card to pay other bills, it’s probably not the right time to buy a house. Spend some time looking for ways to cut back on unnecessary expenses. Pay down some of your other loans and check your credit score.
Can You Afford a Down Payment Plus All the Extras?
It’s possible to get a mortgage with a small down payment. But think about buying a home like buying stock; the less you invest the fewer shares you own. Before the down payment, you’ll also need money for the earnest deposit. This is a way to show a seller you’re serious about your offer. Other items to consider: taxes, appraisals, insurance, and title fees, which are typically part of the closing costs.
Remember that after you purchase your home, there are additional expenses that you'll need to consider. Will you need lawn equipment to take care of a large yard? Are there a lot of renovations or redecorating that you'll want to make in the future? Will you need to purchase more furniture for your larger space? It's not uncommon for first-time homeowners to overlook these additional expenses. It pays to do some research first!
Will You Stay There at Least Five Years?
Another thing to consider is your level of commitment. If you don’t have a stable job, or if you’re thinking of relocating to a new area in a few years, it might be better to wait on buying a home. Buying a home can be cheaper than renting in the long run, but if you buy a house and sell it in two years you could lose money on your investment.
Everyone deserves to have a space to call home. To eliminate some stress during the home buying process, make sure you do your research up front about the potential costs and change in lifestyle that you'll face after you buy a house. If you need help figuring out a budget, remember that we're always here to help you. We can't wait to see the home you choose!