Owning a home is part of the American dream and is one of the most exciting things for a family when the time is right! Knowing when the time is right and when to invest in a home is an important decision and one that is not always clear cut.
Here are five questions to help you evaluate quickly if you are ready to move forward in the home buying process...
1. Do you have an Income?
In order to own your own home, you must have an income which is reliable and continuing. Owning a home brings with it a mortgage payment which could rise, taxes that will go up and insurance that varies as well. Make sure that your income can sustain you through the ups and downs and unpredictability that may come with your purchase.
2. Do you live by a Budget?
This corresponds with your income, but is a very important part of owning a home with as little stress as possible. A budget will help you determine where your money goes each month and how much you can comfortably spend on your monthly payments.
3. Do you have good Credit History?
Your credit history is very important in the process of securing a loan for your home. The better your credit, the more likely you are to get a loan at a lower interest rate and a lower monthly payment. Ensure that your total debt is under control and manageable. On average, mortgage brokers like to see that your monthly housing costs are no more than 35% of your monthly income and your total debt (including your mortgage payment) is less than 38%. The year before you try to buy a home, keep your debts to a minimum and avoid large expenses. To see where your score is right now visit AnnualCreditReport.com
4. Do you have money in the bank?
This may sound simplistic, but it is very important in the process of owning a home! Here is a quick guide to help you see how much money you realistically need to have available:
Down payment-(This varies depending on the type of loan you secure. Each of these percents is based on the price of the home.)
0% VA ($100,000 home: $0-down payment)
3-5% FHA ($100,000 home: $3,000-$5,000-down payment)
10-20% Conventional ($100,000 home: $10,000-$20,000-down payment)
Closing Costs-3-6% of price of the Home ($100,000 home: $3,000-$6,000-closing costs)
5. Do you have the stability to own a home?
Owning a home is very different than renting. The benefits are wonderful: building equity, home ownership, and tremendous tax benefit's. However, you need to evaluate if you are ready to make a commitment to your home. Are you ready to be in the same place for 3-5 years? This is the average amount of time you need to stay in your home to recoup your buying and selling costs.
