Will this be the year you buy your first home?
Buying your first home is arguably one of the biggest decisions of your life; so how do you know when you’re truly ready to become a homeowner? Here are five indications you may be prepared to take this major step:
#1 Your Debt is Under Control
Having some debt is normal, like student loans, credit card debt, auto loans, and other things. When you’re able to comfortably meet these financial responsibilities and still have some cash flow, it’s time to start saving for a down payment (if you haven’t already). Remember, homeownership does come with some additional expenses.
#2 You Already Have a Down Payment
You no longer need to have 20% down to buy a home. It’s possible to put down as little as 3% on a conventional loan or 3.5% on an FHA loan. Additionally, there are many down payment assistance programs available. Of course, the larger your down payment the more benefits in the long run. A 20% down payment will spare you the additional monthly expense of private mortgage insurance, which is basically an insurance policy that protects your lender if you default on your loan.
#3 Your Credit Score is Increasing
Usually, when you’re just getting started in life, your score is on the lower end. As you pay your debts in a timely manner, you prove yourself to be a dependable borrower and you’ll start to see your score rise. Regardless of your age, it is possible to qualify for a mortgage with a credit score of at least 620.
#4 You’re Aware of the Costs
As a homeowner, monthly expenses include more than just your mortgage payment. In addition to your monthly payment, you’ll also need to consider the following:
- Closing costs: These are one-time charges that you pay to close on your loan; and they include things like title insurance, notary fees, recording fees, lender fees, and more. Closing costs can generally be estimated to be between 3% – 6% of the total loan amount.
- Homeowners Insurance: While you’re not legally required to carry homeowner’s insurance, mortgage lenders will require adequate insurance as a condition of your loan. An average rate for homeowner’s insurance is about $100 a month.
- Utilities: As a renter, your landlord may cover some utility costs like garbage collection or water. After you buy a home, you will be responsible for all utilities. At a minimum, you should expect to pay for water, sewer, trash, gas, and electricity.
- Property taxes: No matter where you live, you’ll be responsible to pay property taxes. These taxes go towards services like law enforcement, fire departments, public schools, libraries, parks, and more. Property taxes are based on the value of your home. The higher the value of your home, the more property taxes you will pay. Taxes are due twice a year, but it is advisable to save for this expense throughout the year.
- Maintenance: Similar to utilities, landlords are often responsible for home repairs and maintenance. If you own a home, you’ll be responsible for the expenditure if your $7,000 HVAC system needs replacement. Home warranties can help with some of the ma, but they don’t cover everything.
#5 You’re Bursting at the Seams
We all have stuff – whether it’s office stuff, craft stuff, exercise stuff, pet stuff, kids’ stuff, and so on. If you find yourself running out of space or are planning on making changes that will bring on more “stuff”, it’s amazing what just one extra bedroom can do for your sanity.
The Bottom Line
Reaching these points may seem overwhelming, but you’re never alone in the process. Educating people about homeownership is a passion of mine and I’m committed to sticking with my clients from the formation of the goal of homeownership, through closing, and beyond – no matter how many steps it takes. Get in touch with me today if you’d like to get started on the road to homeownership.