| The first step in the home buying process isn’t qualifying for a loan or even getting your credit score straightened up. It’s actually figuring out whether or not you are actually ready to buy a home! That might sound like a no-brainer to you, especially if you’ve been dreaming of owning your own home for a while. However, in spite of the “American Dream” saying that everyone needs to own their own home, it isn’t actually the best personal or financial move for each individual or family. Here’s what you need to be thinking about before you decide whether or not to purchase a home: Mortgage Loans
Why do you want to buy?
There are many reasons that people choose to buy a home. Some of them are good, and others – not so much. If you’re looking to buy because you want to make an investment, you can pretty much forget it. Historically, investments get much better returns in the stock market than in family homes. Sometimes you can get lucky and pick a really good foreclosure and make a good return, but by the time you pay back your loan plus interest, you’ll probably have ended up better off investing in stocks.
That’s not to say that owning a home doesn’t have financially strong points, too. It’s just not the best way to get an actual return on your investment. Instead, you should look at a home as a way to save up some equity and to build some financial stability into your life.
If, on the other hand, you want to buy because of the personal stability and satisfaction homeownership can bring, you might be on the right track. This is certainly not a bad reason to purchase a home, as long as you do it right. Get into an affordable home in the right neighborhood, and you can really experience the joys of homeownership.
What is the real cost of home ownership in your area?
This is a big question that many people forget to raise when they’re looking at buying a home. In some places, it’s much, much cheaper to rent because property costs are incredibly high. You can often rent the same number of bedrooms or square footage for less than the mortgage payments would be on a similar home. In other areas, though, low real estate prices make the situation exactly the opposite.
If you’re not sure about your area, do some research. You can do preliminary research on your own by checking out websites like rent.com and realtor.com. Look at apartments and homes of similar sizes and in similar areas. Realtor.com will even let you estimate your monthly mortgage payments on particular home, so you can at least get a ballpark average of what mortgage would be compared to rent.
You’ll also need to factor in things like insurance and taxes in the area where you’re looking. These things can be more difficult to find, but sometimes realtors will list estimated costs on their websites. If you’re not sure, talk to homeowners who own homes similar to what you’d be looking for. Keep in mind that moving your search just by one town or county can often save you a small fortune on tax payments or even insurance payments each year!
Of course, just because you live in an area with high real estate prices doesn’t mean that you should never buy a home. It may just mean that you need to wait a bit longer before making your final decision on homeownership. You’ll probably also need to save up a bigger down payment since homes are more expensive.
How much do you have saved up?
One of the best things about renting a house or apartment is that you don’t have to have any emergency fund, really. If the heat goes out or there’s a problem with the stove, management will fix it. You don’t have to stock back any cash for “rainy day” things like this. It’s always a good idea to have an emergency fund, of course, but for renters, it’s not as big of a deal.
When you’re a homeowner, things are different. You are the one who’s responsible for the maintenance and upkeep. Just because you own a home doesn’t mean you’ll be blissfully happy in it all the time. Someday, the water softener will quit working or the washing machine will start walking across the floor whenever you run a load of laundry. You need to have funds on hand to deal with these things.
Also, you need to have an emergency fund that will see you through in case you end up out of work for a while. In an apartment, it’s not expensive to break a lease and move in with your parents for a while. When you’re a homeowner, it’s a much, much bigger deal. Ideally, you should have three to six months of emergency savings in an account that you only use in case of, well, emergencies.
This means that you don’t want to drop every last penny of your hard-earned money on a down payment. Sometimes this means saving for a few more months before you buy, and sometimes it means settling on a smaller starter home where you can make the down payment and still have some money in savings. |
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