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Purchasing a house is a big financial investment. There is no magic clock that tells you when it is time for you to buy a house. Regardless of the number of times you visit open homes, it could be tough to make the jump to become a homeowner. However, certain signs show whether you are ready to purchase a house, and they have little to do with the general housing market and more with your financial condition.
Have You Saved Enough?
Before purchasing a home, you will have to demonstrate to banks you have the discipline and ability to save. If you can’t come up with a 20% down payment of a property’s value, you aren’t prepared to purchase the property. The more your down payment, the smaller your home loan and the less interest you will be charged. You will have to buy private mortgage insurance if you can’t pay a 20% down payment.
Will You Afford the Payments?
Your rent is likely to be comparable to the money you pay in interest and principal on your mortgage. However, the interest and principal are not the only expenses associated with buying a home. Expect the following additional payments:
- Property taxes
- City assessments
- Homeowners’ association fees
- Sewer, water, and garbage
Buying a home should not compromise your normal budget, including maintaining a separate emergency account and saving for retirement.
Are You Ready for the Commitment?
Unless you flip houses, purchasing a home is a long-term investment. House prices rise at a rate of approximately 3% annually on average. Simply put, if you purchase a house and sell it in a year or two, the increase in valuation (if any) will not even offset the selling costs you incurred to purchase the property.
Therefore, you should own your home for at least five years before you consider selling it. If you are not yet prepared to stick with your home for that long, you are not ready to own a home.
Are You Eligible for a Low-Interest Rate?
The lower your mortgage interest rate, the less interest you will pay over the duration of the mortgage. Many mortgage providers look at your financial profile, particularly your credit rating. Your credit rating is an indicator that mortgage lenders use to assess your ability to repay your loan and, thereby, what rate of interest to give you. If you have a high credit rating, you are ready to own a house.
If you tick in all the above, you are ready to purchase a home. When buying a home, you must work with a credible real estate agent to find the best property for you at an ideal price.
Emma Sturgis is a freelance writer based out of Boston, MA. She writes most often on health and education. When not writing, she enjoys reading and watching film noir. Say hi on Twitter @EmmaSturgis2
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