1. Do I have enough money for a down payment?
And how much, exactly, is “enough?” Today’s minimum down payment requirements range from 3.5 percent on an FHA loan to 10 or even 20 percent for conventional loans. That means coming up with anywhere from $7,000 to $40,000 on a typical $200,000 house. And keep in mind there are also closing costs, which can run as high as 3-4% of your total purchase price.
2. Can I handle the not-so-glamorous aspects of homeownership?
As a home owner, you are basically your own landlord. So if your toilet won't stop running, or a pipe freezes and bursts in the middle of the night, you can't call a property manager to take care of the problem. If the idea of having a maintenance crisis is overwhelming to you, you might want to reconsider homeownership-or at the very least, buy a condo or townhome in great condition or a completely renovated home with new mechanicals: ie, plumbing, electrical, roof, HVAC; and make sure you get a home warranty! When you go from renter to owner, you'll need to account for the cost of appliances and maintaining the property’s roof, windows, landscaping, plumbing, and changing the air filters in your central heat and air unit.
3. How long do I intend to stay in the house?
If you think you might move out of the area next year, then you really shouldn’t be thinking about buying a home (unless of course, you intend to use the home as a rental property/investment after you move). You should plan to stay in the home at least 5-7 years-even longer, if you’re buying a home in a foreclosure hot spot or an area with a sluggish job market. This will give you some time to build up equity and make up for the costs of buying, selling and moving.
4. Are my job and finances stable?
Is there really such a thing as 100 percent job security in today’s economy? Probably not. But the best plan is to be confident that your finances can handle a temporary loss of income and still make your mortgage payments, before you buy. One way to do this is to have enough money in the bank to cover 4-6 months’ worth of living expenses, calculating them to include your mortgage payment - before you decide that you're ready to buy. That way, even if you lose your job with no warning at all, you’ll at least have a reasonable window of time to find a new one without digging yourself into a hole - or worse, losing your home altogether.
5. What are my real reasons for buying?
Buying a home is a long-term commitment that will have massive impacts on your lifestyle, your family and your finances. In other words, don’t do it unless you’re really sure you want and are ready for the lifestyle change. Some worthy reasons renters give for their decision to buy include some or all of the following:
**You want to build equity instead of paying a landlord. Fact is, if you get a fixed rate mortgage and make the payments for the full term of the loan, you'll eventually pay it off. That's not possible when you're renting.
**You want a place to call your own, where you can paint the walls any color you want, where you can have dogs without paying fees for the privilege, or where you can plant a garden.
**You want the tax advantages of homeownership.
**You want a stable place you and your family can live for as long as you'd like.
Ask your own questions about why you want to buy, and be honest with your answers. It’s usually just a matter of strategically timing your purchase when your savings, your career and your lifestyle are in alignment with the implications of ownership. Consider working closely with a real estate broker and a mortgage professional to get an action plan in place and start working your plan!
