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There’s nothing like years of rentals and roommates to make you feel that it’s finally time to purchase a home of your own. But what steps should you take to start your journey to home ownership? And most importantly – how do you know if you’re really ready to buy a home?
Home buying and the choice of whether or not to purchase property can seem like a stressful process, but actually, all you need is a little information. Read on for a few factors to help you decide if you’re ready to own a home.
Your Credit Score
Credit is the first thing to consider if you’re pondering the property ladder. A higher credit score means better terms when financing a home – in other words, less money spent in the long run. With a credit score above 720 you’ll be able to access lower interest rates and potentially save hundreds of dollars on interest payments every month. You can still get financing and achieve home ownership with a lower credit score, and if you’re set on home ownership sooner rather than later, you can also take a loan with less-than-ideal interest rates now, and refinance in the future once your financial situation and credit score have improved.
Where You Currently Live
The Boston area has some of the most expensive rental prices in the nation. With many rents now in the high triple or even quadruple digits, countless people are considering home ownership as a way to lower their monthly payments while also investing in the future. While it’s true that mortgage payments are sometimes lower than monthly rent, do keep in mind that the cost of home ownership also includes additional factors such as property tax and maintenance costs. Therefore, the best approach is to crunch all the numbers and see if home ownership would make more sense than continuing to rent.
Your Down Payment Savings
The prices of a down payment can scare away any would-be homeowner, especially in an area like Boston where it was recently estimated that residents need an average of 12 years to save up. Home buyers are traditionally recommended to have a down payment equal to 20 percent of the home’s total price; however, this is not a necessity. A range of financing options are available, especially for first-time homebuyers who in reality are more likely to make a down payment of around 3 percent to 5 percent. Save as much as possible for your down payment, but don’t be afraid to start exploring financing options even if you don’t have a sizable sum of cash sitting in your bank account.
The Stability of Your Employment
Employment stability has an important role to play in your decision to buy or not buy a home. Ideally, you want to be fairly certain that you’ll have a reliable income for the next five years. If you’re unsure that you’re going to stick with your job, or concerned about major changes coming to the company, speak with a home loan officer about what kind of property and loan would be best suited to your situation. For example, an adjustable rate mortgage – offering lower initial monthly payments – might make more sense if there’s a strong chance you’ll be moving for a new job in the next few years.
Planning for the Future
Besides employment, there are a number of other future plans that could affect your home buying decision. Planning to start a family? Applying for grad school? If you foresee income reductions or higher household costs in the next few years, make sure you choose a home that will still be affordable when that happens. The last thing you want to do is purchase an amazing home today and find yourself unable to make monthly mortgage payments a few years later.
Final Thoughts
If you’re serious about home ownership, then it’s time to meet with a home loan officer. A loan officer can talk you through your unique situation; from credit score, to budget range, to financing. Only then can you truly decide if you’re ready to buy a home.
Check out other articles in our Home Buying Series:
