Despite fluctuations in the housing market in the last decade, economists still agree that homeownership is a key way to build wealth.
When you rent, your money goes to a landlord, never to be seen again. But when you own a home, your monthly mortgage payment goes to paying down equity in the home. You can then either cash out this equity when you sell your home or by taking out a home loan.
That said, there are also a lot of responsibilities tied to owning a home that doesn't exist when you are a renter. So how can you know if you are ready to take that on?
If you're wondering, "Am I ready to buy a house?" you've come to the right place. We've got 5 questions you should ask yourself to help you determine.
1. Am I Financially Stable and Organized?
Taking on a mortgage is a big commitment. While most leases are one to two years at most, a mortgage usually lasts as long as 30 years. So, before anything else, you need to determine if your finances are ready to make this move.
Look at your monthly payments. Do you have a car payment, student loan payment, or other debt obligations? Are you contributing to a 401k and/or an IRA?
Next, take a look at your credit cards. Are you paying off the balance every month, or are you skating by on the minimum monthly payment?
Similarly, how is your credit score? Keep in mind that, if you have a low to average credit score, you will pay greater interest than if you have a higher credit score.
2. Do I Have Money in Savings?
Next, you want to consider both your short term and long term savings.
Do you have an emergency fund? Do you have money left at the end of the month Or do you live completely paycheck to paycheck?
It's important to consider what money you have for a "cushion" for a couple of reasons. When you own a home, you always want cash on hand that you can put toward maintenance repairs and emergencies. If the dishwasher breaks or the hot water goes out, there's no landlord to call--that repair is on you.
Also, keep in mind that you will most likely need to put up at least some cash for a down payment. The more you have for a down payment, the lower your monthly payment will be.
Depending on what kind of loan you take out, you will likely need between 3.5% and 10% to put down. See here for more specifics on what you will need to have in order before you purchase a home.
3. Am I Ready to Settle Down?
As stated above, a mortgage is typically a 30-year commitment. Of course, you are not required to actually stay in the house for the whole 30 years. You can sell your home and use the profits to pay off the mortgage, or you can keep your home and rent it out to someone else.
Still, owning a home in a city means that deciding to move away become more complicated. If you rent your home, the worst you have to deal with if you decide to move away is breaking the lease.
Think about where you are, both personally and professionally. Do you think you want to stay with this job? If you don't, are there other employment opportunities in the area?
Do you have a network of family and/or friends around you? Do you think you want to stay in this town to settle down? These are all things to consider before buying.
Of course, this question gets even more complicated if you are in a relationship.
If you and your partner are not married, are you considering marriage? Will you purchase the home together, or will just one of you buy it. While it is not a requirement to be married before buying a home, buying a house when unmarried does make things more complicated.
4. Am I Handy?
Again, as we mentioned above, owning a home means that you are responsible for any repair and maintenance issues that come up.
If you have the money, you always have the ability to call a handyman to come and fix a leaky faucet or a broken toilet. But there are things you should be able to handle yourself. For instance, if you need to change a doorknob or fix a creaky cabinet, these should not require a call to the repairman.
Even if you don't currently know how to do these things, you can consider your aptitude to learn new things and teach yourself through online videos. If you don't see yourself getting your hands dirty, it might be best to continue renting for now.
5. Is My Job Stable?
Another thing to consider before you purchase a home is whether your employment is stable. While there's no way to know the future for sure, you can ask yourself how at-risk you might be of being laid off. And, if you are laid off, how long do you think it would take you to find new employment?
Also, consider how long you've been in your current job. If you've been there shorter than six months, it might be wise to wait--for a couple of reasons.
First, many employers exercise a "probationary period" for new employees. During this time, they may decide to terminate a new employee for any reason.
Second, until you've been on a job for at least six months, you don't really know whether the job is a good fit or not. The last thing you want to do is trap yourself in a job you hate because you have to make your mortgage payment.
Am I Ready to Buy a House? Only You Can Answer
These questions are a good starting point to help you answer the question, "Am I ready to buy a house?" Ultimately, however, the decision is yours alone to make.
Looking for more real estate advice? Check out the rest of our site for more helpful blog posts like this one.
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