Buying your first home can be scary, and exciting. After all, owning a home is a huge financial commitment. You have to pay the down payment and keep up with monthly mortgage bills. Without a landlord to call, you’ll also be taking on new responsibilities to maintain the home and property. You’ll have to mow the lawn, rake leaves, shovel snow and fix leaky sinks. Owning a home can also offer many appealing benefits too, such as more space and privacy as well as the ability to build wealth over time.
Here are some questions you should ask yourself to help you determine whether you’re ready to take on the responsibilities of homeownership.
1. Can you cover upfront costs?
Hopefully you’ve been putting some money into savings over the past few years for upfront costs. You should have enough money to cover a 20% down payment. This will help you secure the best possible interest rate on your mortgage. If you don’t have the traditional 20% down payment there are programs available that allow as little as 0-3% down, you will just be paying more. In addition to the down payment, you should also be prepared to pay for the closing costs, generally 2% to 5% of the purchase price of the home.
2. Can you afford the mortgage?
Make sure you realistically assess if you can afford the mortgage payments each month on a house. You should contact a loan officer to find out how much money you can borrow. Once that is determined, you will know what price range to look for in your new home. Based on conventional lending guidelines, you shouldn’t spend more than 28% of your gross monthly income on a mortgage (principal, interest, taxes and insurance) or 36% of your gross monthly income on a mortgage and other debt (such as a car loan, student loan and credit card debt).
3. Do you have an emergency fund?
There are many unforeseen costs that can occur when you own a home. It’s important to have an emergency fund with about six to nine months of living expenses, just in case.
4. Can you maintain the home?
When you own your own home, you won’t be able to call your landlord when things need to fixed or when snow piles up on your driveway. When the toilet clogs or the sink leaks, you have to be willing to learn how to do those fix-it things that home ownership requires or you have to have the available funds to pay someone to do it for you. To estimate your home maintenance costs, you should take into consideration how old the house is, as well as the ages of the roof, appliances, heating and cooling system and other essential components of the home. If they’re older, it’s more likely your costs to repair or replace can be significant.
5. Do you have good credit?
It’s important to check your credit score and know your number. Your credit score is one of the factors used to determine whether you qualify for a loan as well as how much interest you’ll pay. Any dings on your credit will impact the interest rate on your mortgage. You want your credit score to be as spotless as possible when buying a home.
6. Are you willing to budget?
The costs of mortgage payments, furnishings, lawn care and home repairs will make a dent in your bank account. To stay on top of your finances, you should create a budget. Ask yourself whether you’re ready to make necessary sacrifices to afford all that goes into a new home before purchasing a property.