Owning a home is the epitome of the American dream. But after the housing market crashed, people started to question if being a home-owner really meant having financial stability. Sometimes buying a home isn’t the smartest financial decision you can make and that’s okay. Moving from renting to owning is a huge milestone and change in life-style. You’ll need to prepare yourself with a great credit score, a hefty down payment and expect to live in the same area long enough to make buying worthwhile. Buying a home is a solid investment only if you are financially secure enough to purchase one. So, if you must wait to jump on your dream home then that’s okay. Here’s some things to consider for first-time buyers:
YOU’LL HAVE TO STAY FOR A BIT
Having a lease means that one day your contract will end, and you’ll be free to move wherever you want. It’s flexibility to move to a different neighborhood, get roommates or ditch all your belongings and travel the world. You can’t really do that when owning a home. As a rule of thumb, only buy a home if you plan on staying for more than 5 years. Buying a home involves expensive applications, closing costs and realtors can charge a commission of around 5-6%. It won’t make financial sense to spend all that money if you aren’t sticking around. Homes are a big investment, but you can’t rely on them to hold its value. You may not be able to sell your home for what it’s originally worth and end up loosing money. So, if you dream of backpacking across Europe, or are unsure of where you’ll be in a couple years then really reconsider the urge to jump into a mortgage loan.
YOU’LL NEED A BIGGER PIGGY BANK
The cost of maintaining a home is not the first-thing on a buyer’s mind. You may still be worrying about the hefty down payment you need to first buy your home. A traditional down payment can be around 20% of your home’s price so we understand if it takes awhile to reach your goal. Perhaps you’re having a hard time finding money to save for your down payment, this may mean you’ll have difficulty paying the ongoing costs of owning a home. Repairs, inspections, property taxes, yard maintenance, higher utility bills and homeowner’s insurance are not included in the listing price. These are all things you’ll have to plan for. If you do plan on buying a home, then save as much money as you possibly can. Cut costs anywhere you possibly can. Eat generic food, pay off high interest debt fast, reduce monthly expenses and credit card usage. The more money you put down on your home the more appeal you will have to credit lenders. Lenders look at your credit history and usage to determine your trust worthiness and ultimately, how much money they’ll let you borrow. Putting down more money can lead to lower interest rates and a lower monthly payment. If your credit score is good, then you won’t have to pay mortgage insurance which covers the lender in case you can’t repay the loan.
Maybe you’re credit score is not where it should be, and you want more time to improve things before jumping into a loan. Maybe paying rent for another year is the perfect amount of time needed to improve your score. Renting may feel like “throwing your money away”, but sometimes it’s the best financial move for your situation. It’s up to you to decide if your financially healthy enough to take on being a home-owner.