Those who came of age during the subprime mortgage fiasco are hesitant to shell out their hard-earned money for a home, especially if they have to take out a sizable mortgage. Plenty of young people are renting instead of buying as they are apprehensive about elevated home prices, the economy and long-term career stability. It is awfully difficult to determine when you are truly ready to make the home purchase plunge.
Are You Financially Secure?
Financially secure individuals and couples are those with an emergency fund and a reliable source of income. It also helps to have debt paid down altogether or at least partially paid. The emergency fund should cover at least three months of expenses. This way, if you cannot work due to an injury, sickness or any other reason, you will still be able to cover your mortgage payment for a couple months.
Perhaps most important is the home-seeker’s ability to pay at least 10% of the home’s value in the form of a down payment. Ideally, you will be able to pay at least 20% of the home’s value upfront. Keep in mind there is an added expense in the form of mortgage insurance for those who cannot put down the 20% required to secure a home loan.
Are You Transient?
Those who have not yet “laid roots” should think twice before plunking down a ton of cash on a home. If you are considering moving in the next five years, buying a house could prove to be quite the financial burden. You might not be able to sell the home anywhere near the price you initially paid. Furthermore, there are costs to purchase and sell a home. If you are unwilling to lose upwards of 10% of the property’s value in closing/selling costs and financially incapable of taking such a massive hit, this is not the right time to buy a house.
Are You Financially Prepared to pay for the Home’s Hidden Expenses?
Take a moment to consider all of the potential costs of home ownership. Everything from adding amenities to the home to yard maintenance and home repairs costs money. As an example, if the roof needs to be replaced in a couple years, you will have to spend around $10,000 for the replacement.
Take a Look at Your Credit Score
It will be challenging to snag the home you have your eye on unless your credit dazzles lenders. If your credit score is below 620, you won’t be eligible for a conventional home loan. In fact, plenty of lenders mandate a credit score of 700 or greater. If you are emerging from bankruptcy, are being hounded by debt collectors or simply have bad credit, this is not the right time to buy a home.
Do not Assume Your Mortgage Payment Will be the Same as Your Rent Payment
Real estate agents far and wide have tried to convince home-seekers their mortgage payment will be about the same as their rent payment. This is an exaggeration as homeowners have all sorts of additional expenses from home insurance to property taxes to city assessments, repairs, etc.
Are You Willing to Invest the Time and Effort to Improve the Home?
Problems will inevitably arise after you move into your new home. If you are incapable of fixing a basic leak or performing general home maintenance, you will pay through the nose for someone else to do it. This is not to say you always have to take the DIY (do it yourself) approach. However, if you are clueless about home maintenance, bad with your hands or incapable of performing the manual labor required for repairs, the home has the potential to become a money pit.