5 Questions to Ask Before Buying a Home
Buying a home is a huge commitment, possibly one of the biggest financial decisions you will ever have to make. Before submitting yourself to the process, plenty of preparation and awareness are necessary. The last thing you want is to rush it and buy on an impulse.
Answering the five questions below is a great start. If you can say yes to all these, you are likely to be ready to become a home owner! Otherwise, put it off and do not create a problem for yourself.
Question 1: Are your finances in top shape?
Two aspects are especially important to evaluate: how much credit card debt you have and if you have existing loans. Debt means a lack of money, and if you find yourself dealing with it or suffering from a low credit score, buying a new home and creating more debt is probably not the best idea. Better to clear up existing debts before going through the home shopping process.
Question 2: Have you saved enough for the down payment?
These days, you can buy a home for as little as 3.5% down payment – not too hard to save up for, right? But this is not the only initial investment you will make. You also have to prepare for closing costs, insurance, taxes, funds for repairs and furnishings, and other unforeseen costs. Check your savings and see if you can afford the down payment with breathing room for completing the process of home ownership. If your budget is big enough, you are on the right path.
Question 3: Can you really afford monthly mortgage payments?
Never take a house with a monthly payment more than 25% of your take-home pay. And this is not just about the monthly cost of the principle and interest. You also have to consider other costs associated with being a home owner such as property taxes, insurance, home owner’s association fees, city assessments, water, sewer, and garbage costs, and other utility charges.
Question 4: Are you ready to settle down?
Buying a home is a long-term investment. You want to keep it for at least five years. Home prices appreciate around 3% per year on average. This means if you buy a home and sell it within a year or two, the increased value will not even cover the closing costs you paid to buy the house. Ask yourself if you are ready to settle down. If you keep changing jobs or moving states, think twice about buying that home.
Question 5: Can you fix your own problems?
As a renter, you can easily call your landlord or apartment office to fix whatever problem showed up in your home. But when you are a home owner, it is your responsibility to sort these out. You can either fix it yourself or have enough money to pay others to fix it for you. It helps to prepare for these things both financially and psychologically. When you are ready, go ahead and buy the home of your dreams!