If you are tired of renting or living with your parents, you may be thinking about taking a big step and buying a home. Perhaps you have just landed your dream job, gotten a raise or are starting a family, and the time feels right to put down roots and find a place you can call your own. However, it takes more than good feelings to be a successful homeowner.
You may be tempted to start looking for houses right away. Maybe you already have a wish list or know just the neighborhood where you want to live. While these are steps that will be helpful for streamlining the process, you may first want to take a realistic look at your finances to see if you are ready to take on the responsibility of owning a home.
Getting your financial house in order
Buying a home can be an exciting and even romantic decision, but homeownership can quickly become a nightmare of you are not fully aware of the financial obligation you are taking on. You can certainly keep your enthusiasm if you also keep in mind that you are making one of the most important business agreements of your life. To improve the chances that your decision to own a home will not leave you with regrets in the future, you can take these steps:
- Obtaining a down payment that will keep your mortgage payments, insurance and home maintenance costs manageable
- Establishing a credit history or assessing whether you have handled debts wisely in the past
- Determining whether your income will remain reliable for the foreseeable future
- Gathering documentation to prove to a lender that you are financially stable
- Creating an emergency fund that will cover living expenses or unexpected repairs for several months
- Learning to make simple sacrifices, like eating out less or tightening your entertainment budget, which are often part of prudent homeownership
- Determining how much you can afford for a home
This is likely the first step you will take. The cost of a house includes the mortgage payments, taxes, insurance and closing costs. You must also calculate utility bills, maintenance and repairs. Financial experts suggest that your total debt take up only about 36% of your income, and 28% of that debt can be your mortgage payment.
Chances are, you are closer to being ready for homeownership than you realize. A knowledgeable real estate agent can help you determine if the time is right and walk you through every step of the process. With a reasonable amount of financial preparation, you may soon find the perfect house to call home.