It could be argued that owning a home is the American dream. But that dream can rapidly become a nightmare if you buy before you’re ready. Are you prepared to buy a home? These four questions will help you decide.
How’s Your Credit Score?
If it’s below the mid-750s, you have some work to do before you’re ready to buy a home. One of the first things lenders research is a prospective homebuyer’s credit score. They like numbers in the mid-750s or higher.
While you can get a loan if your score is lower, you won’t be allowed to borrow as much money, and your interest rate will be higher. That will make your monthly payments higher; over the life of your loan, you may spend thousands of dollars in extra interest.
Before you apply for a mortgage, bring your credit score up, even if that takes a couple of years.
Can you afford the down payment?
Take a look at your savings account. Do you have enough money for a down payment, closing costs, and insurance? Will there be enough money left for repairs and renovations you want to do right away? If there’s not, amp up your savings practices before you start looking for a house.
Can you afford the monthly obligations?
Predictions are difficult in these uncertain times. But you’ll be ready to buy a home when you’re confident you can make the monthly mortgage and interest payments and pay for homeowners’ insurance, property taxes, homeowner association fees, utilities, trash pickup, and water and sewer charges. Your car payments and insurance need to enter into these calculations, too.
Also, think about your lifestyle. If you love traveling, dining at pricey restaurants, or have an expensive hobby, make sure there’s room in your monthly budget for those, too.
Are you ready to stay put?
Experts suggest living in a home for at least four years before selling it. It can take that long to recoup the upfront costs of buying the house. Of course, you could rent it. But being a landlord isn’t easy. And if your tenant can’t pay the rent, you’re stuck with two mortgages.
If you’re thinking about changing jobs or leaving the area where you live now within a few years, you’re not ready to buy a home just yet.