Are You Ready to Buy your First Home?
Few financial decisions are quite as daunting as buying your first home. In this first of a two-part column we will discuss what factors are good indicators that you are ready to buy your first home. Next week, we’ll share a few important things you need to know as a first-time home buyer.
Do You Have A Sizeable Down Payment?
It’s no surprise that having a sufficient down payment is one of the first indicators that determine if you are financially ready to buy a home. Though many homeowners are able to avoid sizeable down payments these days due to recently relaxed mortgage lending standards, putting down a small down payment on a home could cost you in the long run as you may have to pay extra for private mortgage insurance or you may end up with a higher interest rate. Putting down a significant down payment has its share of benefits. It will help you build equity, which could come in handy in the event you need to move earlier than expected.
“In the early years, you aren’t building any equity with the mortgage payment,” said Michael Eisenberg, a CPA and financial-planning specialist. “If the market changes or your personal circumstances change and you’re forced to sell, you could lose money if you made little or no down payment.”
Do You Possess Good Credit History?
If you’re thinking about buying a new home, you should be aware of your credit history and credit score. Although it’s not necessary to have stellar credit, having a good score may help lower your interest rate and monthly payment. Find out how to check your score, and improve your score, if needed, in our previous column “How to Prepare and Repair Your Credit for 2014.” If you don’t have an established credit score, you’ll want to wait at least two years before buying a home to begin building a score from scratch.
Do You Have Adequate Savings?
A good rule of thumb is to have enough savings to cover at least three to six months of living expenses in case of an emergency such as sickness or layoff. Prospective homebuyers should always plan ahead to ensure that they can afford the mortgage payment in the event of unexpected hardship.
Are You Ready to Assume Landlord Responsibilities?
Finances aren’t the only indicator to determine if you’re ready to take the plunge into homeownership. Leaving the lifestyle of a renter includes leaving the comfort of a landlord who manages or helps with home repairs, lawn care and other general upkeep. Before buying a home, make sure you’re willing to dedicate the time and energy, and have the financial ability to either manage repairs on your own or hire help to maintain the upkeep of your home in order to preserve the value.
Purchasing your first home can be one of the more exciting and memorable milestones in your life. However, before making this important decision, make certain you’re fully prepared financially and ready to handle the extra work that comes along with home ownership.