Are You Ready to Buy a Home?

Owning a home remains one of the components of living the American Dream. But as the recent housing crisis illustrates, jumping into homeownership without being adequately prepared for everything it entails can be the start of a financial downfall. Owning a home is about much more than having a down payment and being able to pay the mortgage every month. Here are several things to consider to help you determine if you are ready to buy a home.

Your Current Financial State — You need to take a deep dive into your finances before deciding to buy a home. First and foremost, you must have enough money saved for a down payment and be earning enough to cover the monthly mortgage payment. You also need to check your credit score and review your credit report to ensure it is accurate. If you’re already carrying a high debt load, you will want to pay off a good portion of it before applying for a mortgage. If you’re not sure where you stand financially, Home Ready counseling is a great place to start.

Your Financial Future — While we can never predict the future, you should have some idea in mind of what your financial future holds. Is your job secure? Are you receiving regular raises or bonuses? Do you have a “plan B” in mind if you were to lose your job or were asked to relocate? Do you have emergency savings to cover your living expenses for 3-6 months? These are all questions you need to ask yourself before making the commitment to buy a home.

Ongoing Costs and Maintenance — If you’re used to renting an apartment, you’re responsible for paying your rent every month and that’s it. When you own your home, you’re responsible for everything that has to do with the property including yard maintenance, home repair, property taxes and homeowner’s insurance. Not only is owning a home potentially more costly, it’s also a bigger time commitment. Ask yourself if you’re really ready for the additional responsibilities before taking on the lifestyle of a homeowner

How Long You Plan to Stay — There was a time when conventional wisdom dictated that staying in a home two years was long enough to recoup your initial investment and make a profit, but that has changed. Experts now recommend staying in a home for a minimum of 3-5 years before considering selling. Of course, there’s no way to accurately predict how the housing market will fluctuate year-to-year, but if you’re someone with wanderlust who gets bored easily, buying a home may not be for you.

To Rent or Buy a Home? 4 Factors You Need to Consider

To rent or to buy? It’s a question most consumers ponder at one time or another, yet the correct answer varies as much as individual life circumstances do. While your financial state is a major factor, it’s not the only factor you need to consider. Let’s take a look at the big picture:
Financial Readiness
Are you prepared financially to purchase to home? Your ability to make a monthly mortgage payment is only one aspect of financial readiness. You also need a large down payment and a good credit history if you plan to take out a loan. There are other housing costs to consider as well, such as utilities, insurance, repairs and maintenance, and possibly HOA fees.

Additionally, you shouldn’t drain an emergency savings fund to support the down payment of your home. An emergency fund with three to six months of living expenses can become essential at a moment’s notice, whether you own a home or not.

You must also take your personal debts into account. Your monthly debt payments should not exceed 15 percent of your gross income. If you are financially prepared to purchase a home, there is a great tax advantage. You can deduct mortgage interest, private mortgage insurance and property taxes, potentially saving you thousands of dollars a year.

To learn more about your individual situation, check out our To Rent or To Buy calculator.
Personal Readiness
Before purchasing a home, you need to take your goals, values, needs and wants into account. Homeownership may offer a sense of pride, independence and stability. However, there is greater responsibility than renting. In addition to reaping the benefits, homeowners assume all risks. They are responsible for all repairs and maintenance, and they take the risk their investment may not turn as planned if the real estate market swings.

Carefully examine your needs and wants, and those of your family. Your personal readiness will likely fluctuate with your life circumstances.
Real Estate Market
The real estate market can have a large impact on whether you should rent or own. Look at current prices, as well as the history of purchase prices in the areas you would like to buy. Ask yourself: is it a wise time to buy, based on your current needs, wants and goals? Are you likely to get a better or worse deal if you wait a few months, or even a few years?
Location, Location, Location
The adage is true; it’s all about location. If you are ready to buy, is an affordable home available in your desired neighborhood(s)? If so, you may want to jump on it. If not, you may want to wait it out, even if other factors point to buying now. A home is a long-term commitment. If you can’t see yourself in a specific home or neighborhood for at least three to five years, renting may be in your best interest until the right home becomes available.

Additionally, if you don’t know where your job or family circumstances may take you in the next several years, renting can offer flexibility that homeownership can’t. Those purchasing homes should be confident in the location, property type and available amenities.