While there is no doubt that owning a home is part of achieving “The American Dream,” it is important to keep in mind that home ownership also comes with a number of responsibilities. As a homeowner, you will enjoy certain freedoms in terms of how you choose to decorate or modify your home, but you also take on many obligations. Not only do you have to pay your mortgage loan, taxes and insurance, but you are also responsible for providing your home with the necessary maintenance. To that end, it is essential to ask yourself a few key questions before deciding whether or not purchasing a home at this time is right for you.
1 – Am I ready to devote the time and money required for home ownership?
Even if your mortgage payment is equivalent to the amount you pay toward rent each month, you should still be prepared to cover other expenses associated with home ownership. In addition to paying homeowners insurance and taxes, you will need to be prepared to pay for routine maintenance costs as well as unexpected repairs. Also, home ownership involves taking the time to make the necessary repairs and to complete routine maintenance chores. If you are unwilling or unable to devote the time and money necessary to own a home, you may be better off renting at this time.
2 – What is my debt-to-income ratio?
Your debt-to-income ratio refers to the amount of debt you have in comparison to the amount of money you earn. Overall, your total debt should be no more than 40% of your total income and your housing debt should not be any more than 32% of your income. By calculating your debt-to-income ratio, you can determine how much you can truly afford to pay for your home.
3 – How much can I afford to pay for a home?
When determining how much you can afford to pay for your home, you should consider more than just how far your dollars can stretch. After all, just because you can technically afford to pay a certain amount per month, it does not mean you will be comfortable paying that amount. The last thing you want is to stretch your dollars so thin that paying for your home makes it more of a burden than a joy. If your finances are not quite yet in order, it might make more sense to wait a few years before buying your dream home.
4 – What type of home suits your lifestyle?
In addition to deciding whether or not now is the time to purchase a home, you also need to consider the type of home that best suits your needs. For example, if you do not want to take care of your lawn or be responsible for other routine maintenance, you might want to purchase a home in a condo community. If you do not want to abide by strict community rules regarding when you can put out your garbage or what type of modifications you can make to your home, you may want to live in a rural community. If you want everything in the neighborhood to be “just so,” on the other hand, a suburban neighborhood with a strong homeowner’s association may be more fitting.
5 – Have I created a list of what do I want and need in a home?
Before you start searching through available properties, it is a good idea to create a list of the features you need and want in a home. By creating this list, you will be better able to communicate your needs to your real estate agent while also staying focused on the search process. When visiting homes, it is easy to let your emotions take over. With the help of your list, you can keep your feelings in check while remaining focused on the goal.
6 – Am I prepared to negotiate?
Even after finding the “perfect” home, there is no guarantee you will be able to purchase it. With the help of your real estate agent, you will submit an offer to the seller that he or she may choose to reject or accept. If the seller rejects the offer, your agent will continue to negotiate on your behalf. If an agreement is not reached, however, you need to be prepared to continue the search.
7 – Buy the just right home
Buying a house will maybe be one of the biggest financial commitments you’ll make in your lifetime. Before you agree to buy what you think might be your dream house, ask yourself some important questions : Are you planning on staying at your current job? Getting married? Having kids?
Depending on the market and the terms of your mortgage, you need to be sure that this house will be the house for you in few years, if not you may want to keep looking.
8 – Think about commitment
When you get married, the laws determine how your assets are treated – and distributed at divorce. But if you’re not married. That means you need to think long term. When you buy a house with your significant other who is not your spouse, make sure you have an exit plan if things don’t go well. It can be a good idea to have a writing agreement in place for title, mortgage payments, repairs…
9 – Buy the house you know that you can afford
This can be different from the price that your mortgage company believes that you can afford.
Some lenders suggest that you can afford mortgage payments totaling about 1/3 of your gross income but others suggest closer to 28% for housing related costs including mortgage, insurance and taxes. There are a number of factors including your projected income, interest rates, type of mortgage and the market. Ask your mortgage broker to help you understand .
10 – You don’t have to buy a house
There’s no rule that says you have to buy a house by the time you’re 35 – or ever. Buying a home is a big decision and while it can be a sound financial investment, it’s not for everyone. There is a lot to consider, including the housing market, interest rates, your future plans… You might want more flexibility or mobility, or your career and family plans may change. If you’re not sure about a neighborhood, consider renting as a test : a realtor can help you with that, too.