It’s time to invest in your own home (instead of paying the landlord’s mortgage!) and you are ready! But you want to be prepared. There’s a lot of information out there – how do you navigate through what’s accurate for YOU, for your AREA, for YOUR budget and what should you be focused on TODAY?
- How long do you plan to live in the home? If you purchase a home and get a job transfer or decide to move after only a short time, you may end up paying in order to sell it. The value of your home may not have appreciated enough to cover the costs that you paid to buy the home and the costs that it would take you to sell your home.
- The length of time that it will take to cover those costs depends on various economic factors in the area of the home. You should plan to stay in your home at least 5-6 years to cover buying and selling costs. If the area you buy your home in experiences an economic up turn, the length of the time to cover these costs could be shortened, and the opposite is also truee.
- How long will this home meet your needs? Are you moving into a school district with 15 years ahead of you for your children’s education or are you choosing a school system with only 2 years left for school? Thinking long term will help you figure out ALL of your options.
- What features do you require in a home to satisfy your lifestyle now? Five years from now? Depending on how long you plan to stay in your home, you’ll need to ensure that the home has the amenities that you’ll need. For example, a two-bedroom may be perfect for a young couple with no children. However, if they start a family, they could quickly outgrow the space.
- How much can you afford? Is your financial picture healthy? Is your credit good? A couple of blemishes on a credit report will make you a good credit risk and could qualify you for the lowest interest rates. If you have more than a couple of blemishes on your report, lenders may still provide you with a loan, but you may just have to pay a higher interest rate and fees. Some say that you should refrain from borrowing as much as you qualify for because it is wiser not to stretch your financial boundaries. The other school of thought says you should stretch to buy as much home as you can afford, because with regular pay raises and increased earning potential, the big payment today will seem like less of a payment tomorrow. This is a decision only you can and should make.
- Typically home buyers will need some money for a down payment and closing costs. However, with today’s broad range of loan options, having a lot of money saved for a down payment is not always necessary – if you can prove that you are a good financial risk to a lender. If your credit isn’t stellar but you have managed to save 10-20% for a down payment, you will still appear to be a very good financial risk to a lender. The ongoing costs of home ownership. Maintenance, improvements, taxes and insurance are all costs that are added to a monthly house payment. If you buy a condominium, townhouse or in certain communities, a monthly homeowner’s association fee might be required. If these additional costs are a concern, you can make choices to lower or avoid these fees.