Here's our 10-point checklist to find out if you're ready to buy a home.
#1. You're comfortable making a monthly housing payment.
If you've already been paying rent or some other housing payment each month then you are prepared for the monthly mortgage payment but you'll be expected to pay to the bank each month. Depending on where you live, sometimes rent can be just as much or even sometimes more than a mortgage payment. If you've gotten into the habit of making an on-time payment each month, you should be ready for monthly mortgage payments.
#2. You have a little bit of money in the bank.
If you're living paycheck to paycheck barely making ends meet each month, the house may not be the best option. Renting means that you have very little responsibility in repairing or replacing items that break from natural wear and tear. When you own a home, you are the only one that will pay for this repair or replacement. You need a little bit of extra money in order to take care of any emergencies that might arise.
#3. You have some savings.
This is more than simply having money left over each month after your paycheck; this is money saved up for either a down payment and/or closing costs. When you purchase a home you'll need an earnest money deposit, which is usually 1% to 3% of the purchase price of the home. This could be several thousands of dollars. If you do not have money for a down payment or earnest money deposit, chances are your mortgage will be extremely high and sellers may not accept your offer.
#4. You have good credit.
I didn't say perfect credit because you don't need perfect credit to apply for a home loan and get approved but you do need to meet a certain requirement for credit score and credit history in order to qualify. Talk to your lender about what these qualifications are and get a copy of your credit history.
#5. You're planning on staying a while.
If you like to move every six months to two years, buying a permanent house may not be the best option. Buying a house is a long-term commitment so unless you're planning on staying at least 3 to 5 years, you might stick to renting for now.
#6. You're ready for more responsibility.
Whether you purchase a single-family house or condominium your responsibilities will increase. You are now responsible for appliances should they break, mowing the lawn or keeping up with the landscaping and maintaining the structure in general.
#7. You're ready for tax breaks.
As a homeowner, you can receive certain tax credits and deductions on your mortgage interest and property taxes each year.
#8. You understand the market and know that it's a good time to buy.
If all the other factors come into play but the market is just terrible, it may not be time to buy and this is no fault of yours. Talk to your real estate agent about the best time to buy in your neighborhood and in your market. There are typically more homes on the market during the spring and summer but you might be able to get a better deal in the fall or winter. Talk to your agent about the type of market we're in and if it's a good time to buy.
#9. You understand the hidden expenses of owning a home.
There are many additional costs of homeownership that new homebuyers tend to overlook. You will need to pay homeowners insurance, taxes and possibly private mortgage insurance or PMI, which is added onto your monthly mortgage payment in the cases of a low down payment or zero down payment loan. You may also pay homeowners association fees monthly, quarterly or annually if you buy a condominium or a home in an association.
#10. You don't have a lot of debt.
If you simply have school debt or a car loan, that may be OK but if you have numerous credit card debts, maxed cards, loans and too much debt in general, it will be difficult to get a loan and extremely difficult to add one more payment to your monthly bills. Pay down some debt first before applying for a loan.
I know this is a lot of information and it's a good checklist but it is extensive. However, verifying all of these items will make homebuying much easier and it will make that monthly payment that much easier to afford and manage each month.
If you feel you're ready for homebuying please contact me now to get started looking at homes today. Still have some questions on whether or not you qualify. Click here now for free consultation about homebuying, the market and answers to all your real estate questions.