How to Determine if You are Ready to Buy Your First House
The decision to purchase your first home is not one that should be made lightly. It is an important, life-changing decision that should be given serious consideration. So, before you take the plunge into searching for the prefect home, here are some questions you should ask yourself to make sure that you are ready.
- Can I afford a home? The first step is to determine if you can afford to buy a home based on your current financial situation. Using a home affordability calculator will help you figure out how much you can afford by plugging in your income, debt and the amount of a down payment you will be able to make. You will now have a number of the highest amount you can afford and what the monthly payment will be.
- Is it better for me to rent or buy? The answer to this question depends upon what kind of market you are in because inventory can make a huge difference. Using a rent vs buy calculator will allow you to crunch the numbers. You can enter the current amount of rent you’re paying (or how much you would be able to pay) and the zip code where you want to live. The calculator will provide a comparison of the cost of buying a home versus renting in that area. You will also be able to see which option is more cost effective over time.
- How long will I live here? If you plan to stay in a home for a long time, it is generally better to buy versus rent. If you’re going to be living somewhere for a short term, renting might be the better option. The reason is that when you buy a home you will likely have to pay closing costs which can total in the thousands of dollars. In addition, most of your early mortgage payments go toward interest rather than paying down the principal, which is the actual amount you owe on the home. A good rule of thumb is that home buyers should stay put for at least five years. Otherwise, renting is better.
- Are you saving for retirement? Retirement may seem a long way off to young home-buyers, but it is important to start saving early. It’s not a good idea to neglect your retirement accounts in order to “save” money to put down on a house. Consider meeting with a financial counselor who can help you find a balance in saving for retirement and saving for your first home at the same time.
- Am I ready for the responsibility? Owning a home is a huge responsibility. With rentals, you can call your landlord to fix things that aren’t working in the home, but as an owner, it all comes down to you. You need to be sure that you have the time, willingness and resources to keep up with home and yard maintenance.