Want to buy a home, but don’t know whether now’s a good time? Buying a home is a big decision. And while homes are a great investment and an excellent way to increase your net worth, buying at the wrong time can have serious financial consequences.
Before contacting a home loan lender and submitting your application, consider five reasons to buy a home, and then determine whether now’s the right time to invest.
1. You have money available to pay mortgage-related fees: Buying a home involves more than completing a home loan application and paying your mortgage payment. Before you even receive your new house keys and submit your first mortgage payment, you’ll have to pay a variety of upfront fees. This includes an application fee ($25 - $45), an appraisal fee ($250), a home inspection fee ($300 - $800), earnest money deposit ($500 - $1,000) – and in some cases – settlement costs.
2. You have a good credit history: After the subprime mortgage fiasco, it’s become increasingly difficult for people with less than perfect credit to obtain a home loan. Some lenders continue to offer high risk mortgages. But borrowers pay high interest rates, and these lenders typically require a sizeable down payment. It’s better for home buyers to postpone the home buying process and improve their credit. You can’t go from a 500 credit score to a 700 credit score overnight. But you can take steps to gradually boost a low score. Reduce your total debts. Pay your bills on time. And stop applying for new lines of credit.
3. You have money in savings to pay for unexpected home repairs: When you own a home, there’s no landlord or maintenance man to fix repairs around the house. If the roof starts to leak, or an appliance stops working…you’re responsible for the bill. Therefore, it’s wise for every homeowner to have an emergency fund reserved exclusively for incidentals. If you don’t have much in savings, consider buying an annual home warranty.
4. You’re tired of flushing money down the toilet: Let’s face it: rental payments benefit your landlord; and if your monthly rent payment is $1,000, you’re basically wasting $12,000 a year. That’s money you could have put towards a mortgage payment.
5. You can afford a mortgage payment and other household expenses: Even if you like the idea of homeownership, it doesn’t make sense to purchase a home if you doubt your ability to afford the payment. Just remember: the monthly payment is only one expense. You’ll have to pay electricity, gas, telephone, insurances, food, transportation, etc. Ideally, home mortgage payments should not exceed 36 percent of your monthly income.