1. Money

Before You Buy a Home

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Buying your first home is one of the most important transactions that you will ever make. You need to make sure that you can handle the mortgage payments, that you get a good mortgage and that you are making a wise decision. You may also need to make financial changes before you are ready to buy a home. Here are five questions to ask yourself before you buy your home.

How Long Will You Be in the Area?

This question will vary and the answer may suddenly change due to circumstances in your life. Ideally, you should stay in your first home for three to five years before you move again. You need to stay that long in order to break even on the mortgage. If you know that you will be transferring to a new area or will want to move up in size in a year, it might be better to wait to buy a home then.

    How Much Can You Afford to Pay?

    Your entire mortgage payment should be no more than 25% of your gross income. You can stretch this up to 28% if you have no other debts at all. If you are taking out two mortgages (80/20 or 80/15) then you need to combine these payments to find out if you meet the criteria. Your total monthly debt payments (including the mortgage) should not exceed about 33% of your gross income. If you reach beyond what you can afford to pay you risk the possibility of losing your home, so be realistic in purchasing your home.

      How Are You Financing the Loan?

      If you are financing with an ARM (adjustable rate mortgage) you really should not be buying the home. Your interest rate will go up and increase your payments, and then you may find it difficult to make the payments. Your equity may not grow quickly enough to allow you to refinance before your rate changes kick in. If you are financing with an 80/20 you need to work to pay off the 20 as quickly as possible. You may qualify for an FHA loan, if this is your first home. You need to understand the risks with this type of loan.

        Did the Home Pass Inspection? or What Work Needs to Be Done?

        Before you buy you need to make sure that the home passes all inspections. It is worth the money to pay for the inspection. This can help you to avoid costly mistakes. If you are planning on remodeling, you need to add this into your budget, as well. This step will keep you into running into any surprises once you purchase the house. if you are buying a home that you plan to do renovations on, you still need a good home inspection.

          Are You Ready for the Responsibility?

          Once you are a homeowner you are responsible if the furnace goes out or if your refrigerator dies. You need to have a sinking fund set up for home repairs. If your budget is too tight with a house payment, then you likely are not ready and should wait to buy a home. You may want to save up a $5000.00 sinking fund for home repairs before you buy. Be sure that you can afford your home insurance in addition to your house payment.  Do not give into pressure to buy a home before you are ready, instead wait until you can answer yes to all of the questions. You can evaluate whether you should rent or buy each year until you feel ready to buy a home. Be sure you take into account unexpected or additional costs like buying new furniture or paint.

             

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