Buying a home is a big decision and a huge step financially. For most people, a home mortgage is the largest debt they will ever assume in their lives. And owning a home comes with all kinds of hidden expenses, so just because you can afford the monthly mortgage payment doesn’t mean you can afford to own your own home.
Before you can call yourself ready to buy a home, you need to have your finances in order. Financial stability is key, and so is having sufficient money for the down payment and closing costs. You should have an emergency fund set up to handle any repairs that might crop up, and you should be prepared to pay for property taxes, homeowners insurance, and regular maintenance. You should also be ready to stay put for a while, because you need to live in your home for about five years in order to recoup the closing costs you paid for your loan. Here’s how to tell when you’re ready to buy your own home.
You Have Enough for a Down Payment
Amassing enough money for a down payment is the biggest obstacle most aspiring homeowners face. Fortunately, it’s a myth that you need to save up 20 percent of the purchase price of a home to make a down payment. These days, the average homeowner puts down about 13 percent, but you can get into a house with even less money than that.
If you’re a first-time buyer, you can get a Federal Housing Administration (FHA) loan with a down payment of 3.5 percent if you have a credit score of at least 580. If you’re an active duty military member or a veteran, you might qualify for a Veterans Affairs (VA) Home Loan with no down payment. If you’re thinking of buying a home, you should look into state and federal loan programs for first-time home buyers. You can often find state and local programs that will offer down payment assistance or favorable loan terms. For example, if you’re looking at homes for sale in Cornelius, NC, you’ll want to look into the NC 1st Home Advantage program.
Your Credit Is Good
The lower the interest rate on your mortgage, the more money you’ll save in the long run. To get a lower interest rate, you need a good credit score. Most lenders want to see a score of at least 740 in order to qualify for the lowest interest rates. Take the time to repair your credit before you start applying for loans.
You’re Prepared to Handle Emergency Repairs and Regular Maintenance
If something breaks in the home you’re renting, you don’t need to worry about repair costs – your landlord will handle it. When you’re in your own home, you’re responsible for those costs – and the condition of your home could quickly deteriorate if you don’t handle emergency repairs and regular maintenance as needed.
You need to save up for more than a down payment when you want to buy a house. You also need to have extra money set aside for emergency repairs and maintenance. You can expect to spend about $1 for every square foot of space in your house on maintenance each year. So, if your home is 1,900 square feet, budget to spend $1,900 on maintenance costs each year. It’s a good idea to have several thousand dollars in an emergency fund for repairs, too. Repairing or replacing appliances or home systems (wiring, plumbing, and HVAC, for example) can easily run to $10,000 or more.
You Can Afford Property Taxes and Insurance
When you’re calculating your monthly mortgage payment, don’t forget to include the cost of homeowners insurance and property taxes. Ask your realtor to obtain a copy of the most recent tax bill for the property from the seller so you know how much you can expect to pay in yearly property taxes. Make sure your homeowners insurance includes riders for your valuables, like works of art, expensive jewelry, and high-end electronics. If you’re moving to an area with extreme weather events, landslides, earthquakes, or other natural disasters, including flooding, you may need supplemental insurance to cover any damages incurred from those causes.
You’re Ready to Settle Down
You shouldn’t buy a house unless you’re ready to live in it for at least five years. That’s how long it typically takes to recoup your closing costs in the form of equity. You should also wait until your work situation is stable – if you don’t have job security or you know your job is going to ask you to move around over the next few years, you’re not ready to buy a house.
Buying a home is a big step, and it’s one you should only take when you’re ready. Jumping the gun on home ownership can leave you financially crippled, so make sure you’re truly ready to buy a place of your own.