Buying a home is, for most people, the logical “next step” in life, but it is also a major financial commitment. How do you know you're ready to buy a house?
1. Your mortgage payment would be comparable to your rent for the same approximate home size/style/condition. Sometimes rent will be cheaper than a loan payment and vice versa—it depends on the housing market at the time, and how good of a deal you get on either a purchase or rental contract. You need to consider comparative size and accommodations—if you rent a 1-bedroom condo, your rent is going to be significantly less than a loan payment on a 3-bedroom single family house. You should also remember that, considering the upsides of homeownership, it’s okay to pay a bit more to own instead of rent.
2. Your budget is ready. A good way to determine if you’re ready to be a homeowner is to see if your budget can handle it. Make sure that you’re able to afford not just the mortgage payment (including the insurance(s) and property taxes), but also the utilities, HOA fees (if applicable), and upkeep/repairs of the home. If your budget can handle it while comfortably paying for everything else, you’re good to go. If you’re finding it’s tighter than you’re comfortable with, you might not be ready yet, or you may want to consider a lower-priced home (or one without HOA fees).
3. You can get pre-approved. We can help you with this one! If your credit is at least fair, you have a reliable income, and your other debts are not outrageous, you should have some solid mortgage options. The best rates are for scores of 740 or higher, but there are great options for scores of at least 600 as well (we can go even lower than that, but your options are limited). Even if you’re not quite ready, we can help you put together a plan that helps you to be ready to purchase a home as soon as is prudent.
4. You’re prepared to stay in one place for a while. As mentioned in a previous post, you normally only need to own a home for a minimum of 18 months in order to make a worthwhile investment (if the market is in your favor), but the more time you can give yourself, the less chance you’ll have of losing money. Giving yourself a 2-year minimum window may be safest. If you’re planning on renting out the home, then you can stay in the home for even less time.
Now that you’ve seen some signs you might be ready to buy a house, consider also the following signs you might not be ready to buy a house:
1. You aren’t sure how long you’ll be around. Again, there’s sort of an 18-24 month benchmark to make homeownership worth it, unless you think you can rent the property (and are prepared to be a landlord) if you move before then.
2. Your income is potentially unstable. You need to be sure you’ll be able to continue making your payments and keep up with your expenses. If your income situation fluctuates or you have a temporary source of income, homeownership might not be the best idea right now.
3. You’re trying to keep up with the Joneses. Are you better off renting but feeling pressure to buy because your peers are doing it? Peer pressure isn’t bad if it makes you consider your situation, but if it doesn’t seem right after an honest analysis, don’t buy a house just to be cool.
If you think you may be ready to buy, contact us so we can get you pre-approved!
