In today’s world of home improvement shows, online pin boards, and do-it-yourself blogs, owning a home is more exciting than ever. But while it may look like a lot of fun, homeownership is a serious, life-changing decision. If you buy before you’re financially ready, you may get into trouble quickly. So, how do you know if owning a home is the right move for you? Ask yourself the following questions.
Are you ready to settle down?
One of the most common mistakes people make is buying a home before they really know their long-term plans. Real estate can be a good investment, but the market is also unpredictable. Unless you know you’re going to be there a while, buying a home isn’t always the right move. There are benefits to buying a home, but if there’s a chance you’ll have to relocate in the near future, you’re probably not quite ready.
Do you have enough savings?
Buying a home means coming up with at least a little cash for a down payment. And while paying the traditional 20% down can mean a lower interest rate, there are other types of loans if you don’t have that kind of cash on hand. Of course, the down payment is only the beginning of the expenses. There are other costs and fees associated with buying a home and closing a loan, which can add as much as 2% to 5% of the loan value. And beyond the essentials, you’ll likely have other expenses associated with getting your home move-in ready.
Do you have enough income?
Using a simple online calculator, it’s easy to estimate a monthly mortgage payment. But don’t forget about the other costs that get rolled into that amount, like homeowner’s insurance and property taxes. Most banks prefer to make loans that won’t go above 28% of the borrower’s monthly income. And if your total debt exceeds 36% of your monthly income, it can be difficult to get a home loan. Also, don’t forget about utilities, upkeep, repair expenses and luxuries like cable TV and internet.
On TV and online, home ownership looks fun, easy and affordable. But before you pick out paint colors or draw up a floor plan, make a plan for responsible home ownership. Ask yourself all the right questions, then decide whether or not you’re ready to buy a home.