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Are you ready to buy a home?

Are you thinking of buying a home this year?  Are you not sure if you are really ready to buy a home?  There are a few important questions that you have to ask yourself. And you need to really make an honest evaluation of your current financial situation.  This self-review is key to making the right decision regarding homeownership.
Is having your financial situation under control important?
Yes, having your financial house in order is extremely important.  If you are already struggling with paying your bills and savings, a house is not the next step for you.  It will most likely just add to your financial woes and could lead to a catastrophic financial situation. Plus, you will need a good credit score to even be approved for a mortgage loan.
What are other financial issues to consider before buying a home?
First and foremost, you need to be able afford the mortgage payment.  The simple rule of thumb is that don’t spend more than 25% of your gross monthly income towards your total housing costs.  It is important to note that total housing costs include mortgage, insurance and taxes.  Going higher is okay as long as your total monthly debt obligations including your mortgage don’t exceed 36%.
What is the prevailing advice regarding the amount of down payment to make?
The easy answer is to suggest having 20% saved for a down payment because one will avoid private mortgage insurance costs.  However, for a lot of new homeowners that is generally not a realistic number.  10% is very good goal for your first house and there are certain circumstances where even 5% might be an option.
Are there any other issues to consider before buying a home?
First, are you ready to handle the day to day upkeep of a house. There will be no maintenance department to call if there is an issue with the home.  Secondly, building an emergency fund is critically important when owning a home.  All homes, even new ones, will have repairs and general upkeep that will be required annually. 
What is the conventional wisdom for how long you should stay in a home?
This is going to depend a lot on the current market but generally speaking at least three years is the minimum window to recoup the initial buying costs, of course longer is better and getting to five years is probably the ideal window to be sure you don’t lose from all the transactional costs of buying and selling homes.

Posted: 2/2/2015 with 0 comments

Categories: Homeownership, Money Matters

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