If you’re tired of renting, living the apartment life, or continuously having to move because the house you’re renting gets sold, you may be thinking it’s time to live in your own house. But then the questions start to spin – are you really ready to take on this huge financial commitment?
In today’s hot real estate market, the competition for homes often leads to quick purchases which can result in buyer’s remorse. In fact, one recent survey found that nearly two-thirds of millennials had regrets after purchasing. That means that in addition to understanding all the steps to buy a house, you’ll want to ask yourself a few questions to find out if you’re truly ready to become a homeowner.
What’s my credit score?
While you can buy a house without having good credit, it’s usually better to wait until it improves, otherwise you’re going to be looking at a high interest rate which also means a higher monthly payment.
Ideally, your score should be at least 740 to get the best interest rate, with 580 the lowest most lenders will go for an approval but you’ll still have to have a good debt-to-income ratio. Lenders prefer that it be lower 35 percent or lower with a maximum of 28 percent of your debt going towards your home loan.
How much money do I have in the bank?
Lenders prefer that you have enough money to put down 20 percent of the home’s purchase price. That means if you’re going to buy a $300,000 home, that’s $60,000. Ouch.
The better news is that you don’t have to have that much. Some financing options require as little as 3 percent while others require 10 to 20 percent. If you can get a loan with a 3 percent down payment, in this example that would be $9,000, a lot more doable for most. But the more money you invest through your down payment, the smaller your monthly loan payment will be.
There is more, however. You’ll also need money for closing costs which typically range from 2 to 5 percent of the loan, the fee for a title search and home inspection, property taxes, and mortgage insurance (if you don’t put at least 20 percent down), among other potential charges.
Can I afford the monthly payment?
Even if you have enough cash for the down payment and other expenses, and your credit score is good, you’ll still have to ensure that you’ll be able to afford your monthly mortgage payment.
If you can’t afford a home in the neighborhood you want to live in but living there is a must for whatever reason, it may be better to continue renting until you can afford to buy there.
Can I handle the maintenance and repairs?
In addition to the costs that come with maintaining a home and making necessary repairs, that aspect is going to take up quite a bit of your time and even more money.
Owning a home means ensuring that it’s well-maintained. If you have a yard there will be mowing, raking, and so on, plus everything from leaky pipes to the cost of tarping a roof and replacing a water heater will have to be considered.
Will you be able to stay in the same place for at least a few years?
If you’re questioning whether or not you’ll be able to stay in the same place for at least a few years (ideally five or more), renting is a better idea.
That’s because, due to the high costs that come with the initial purchase, a home doesn’t usually make for a good short-term investment. The longer you can stay in it, the more likely you’ll be able to regain what you paid upfront and make some profit.