The real estate market is heating up and will be even hotter as we enter into the spring season. That means some of your family and friends will be purchasing a home of their own. Perhaps you are curious if you should become a real estate owner as well? That being stated, you may not be sure if you can actually afford it. The bottom line of renting vs. buying always comes down to affordability. That means you need to know if you are financially ready to purchase a piece of property. Buying a home of your own is the typical American Dream for a great deal of people.
It goes without saying that there is a significant amount of pride and satisfaction with owning a piece of real estate that you can call your own. The following information will help you determine if you are financially ready to buy your first home this spring.
Question #1: Are You Out Of Debt?
Keep in mind that being out of debt includes consumer debt, like credit cards, and even student loans. If you have a significant amount of debt, it is always a good idea to pay it off or at least down before you decide to buy a house.
Question #2: Have You Saved Up Enough Money To Cover 3-6 Months Of Expenses In Case Of An Emergency?
You just never know when the unexpected happens. For example, you could be laid off from your job. If you own your own home, you should always have a minimum of 3-6 months worth of expenses put away in the bank in case on an emergency. That should give you enough cushion while searching for a new job.
Question #3: Do You Have The Credit And Income To Qualify For The Mortgage?
If you answered YES to Question #1 and Question #2 chances are good that you will be able to qualify for a mortgage to purchase your new home. Most banks and lenders will check your credit report and income statements in order to see if you are credit worthy. Credit worthiness is a combination of your credit scores, called Fico scores, and your debt to income ratio, which is basically a balance of how much you earn verses how much money you have in debt.
The debt includes your new mortgage payment, property taxes, and property insurance. You should always speak with a bank, lender, or mortgage broker in order to pre-qualify for a loan before searching for a home. Your Realtor can help set you up in this regard.
Question #4: Do You Have The Cash For The Down Payment
Most if not all home mortgages require a down payment these days. That means you need to have the cash on hand in order to pay for it. If you can put down a minimum 20% of the purchase price it will save you a lot of money in the long run. That means if you are buying the house for $200,000, the 20% down payment is $40,000. There are other options for buyers that do not have a 20% down payment, but they can be costly. For example, you may be forced to pay a higher interest rate, and will typically be required to pay monthly Private Mortgage Insurance, or PMI for short. In essence, PMI protects the lender from going bankrupt if borrowers fail to pay their monthly mortgage payments.
In conclusion, if you answered no to any of the questions as listed above, you may not be ready to buy your first home this spring. You are better off putting your home purchase on hold for now and focusing on your finances until you can answer YES to all of the questions listed above.
If you did answer yes to all of the questions above, then congratulations, you are ready to buy your first home! Contact us with any real estate related questions, or further explore our vast array of services by giving us a call today.