Are You Ready to Buy Your First Home?
Buying your first home can be a daunting task. These are a few questions you should ask yourself to gauge whether or not you're ready to look into buying a home.
Question 1: How long will you be in the specific area that you're looking to get a home in?
If you want to live in a specific town, and either work nearby or don't mind commuting then thinking about how long you want to stay in this home is crucial! If your job is constantly changing locations with no set place then maybe buying a home wouldn't be the best option at this time. Ideally, you should stay in your first home a bare minimum of 3-5 years in order to break even on the mortgage.
Question 2: Can I Afford to Pay?
When buying a home, the entire mortgage should not exceed 25% of your gross income (your gross income is the total pay from your employer before taxes or other deductions). If you want a budget stretch, you can even look at upwards of 28% if you have no other debts at all but anything past that is just not responsible. That being said, your total monthly debt payments (including the mortgage and all other debts like credit, student loans, etc.) should NOT exceed 33% of your gross income.
Question 3: How Am I Financing the Loan?
If you are financing your home with an adjustable rate mortgage (ARM), then buying a home is not the best option for you right now due to the fact that your interest rate can increase and make your overall monthly payments higher. This is also a risk because your equity may not grow quickly enough to allow you to refinance before rate changes occur. A good loan to get is an 80/20 loan where you need to pay off the 20% that you owe as soon as possible. You could potentially qualify for a Federal Housing Administration (FHA) loan if it’s your first time buying a home. Not only do you have to take into consideration the type of loan but also the loan length. There are 10,15, 20, and 30-year mortgage options. In regards to the length of the loan, the longer term, the lower the monthly payments, but more interest will be paid over the span of the loan.
Question 4: Did the Home Pass Inspection?
Before you pull the trigger on buying your first home, you need to make sure the home passes all inspections. This means that it is worth the money to pay for a home inspector to check out the property because it can help you avoid costly mistakes, and avoid running into surprises after you move into the home.
Question 5: Am I Ready for the Responsibility?
Becoming a homeowner is a very big responsibility. You are now responsible for everything within the house and on the property. That means you should have roughly $25,000 worth of money saved up to cover around five accidents worth of repairs. You need to be able to take on the financial responsibility of what comes with a house. If you feel confident to answering all of these questions, then it may be time to start looking for a house to become a first-time homeowner!