Buying Your First Home
If you’re thinking about buying a house, it’s important to understand the weight of your commitment. Before you buy, make sure you’ve thoroughly thought through this decision so you can enjoy your homeownership and be prepared for the curveballs of owning a property. Here are some things to consider.
Your Financial Status
Before making one of the largest investments of your life, it’s important to know whether you’re financially able. To understand your financial standing, create a budget to assess how much you can reasonably afford each month in mortgage payments. Your debt-to-income ratio shouldn’t exceed 43 percent, according to the Federal Housing Administration. That means that your mortgage payments, combined with other housing, such as real estate taxes and insurance, should not be more than 43 percent of your gross monthly income. Maintenance expenses are not included in this ratio, so don’t forget to factor in these, too.
Although your lender will advise what you can afford, remember that you still want spending money for leisure activities, retirement savings, and other living expenses. You don’t want to buy a house if it will result in cash shortages that prevent you from enjoying other activities. If you already know how to budget, save, and are on top of your finances, these good financial habits bode well for the responsibilities of home ownership.
What’s down the road?
Homes are not a liquid investment. If the real estate market fluctuates or declines, it’s not easy to sell quickly, which is why you should be prepared to commit to your new home for at least three to five years. Because of the high transactional costs and fees associated with buying and selling, you can lose money if you sell too quickly or are forced to sell in a market decline, like the recession that started in 2008. You should also consider any potential future expenses, like a new car or starting a family. Also, make sure that you have some sort of job stability and security to ensure a steady income to sustain yourself for years to come. It’s best to have an emergency fund stashed away to help pay for unexpected expenses, like home disasters, but also in case you lose your job or get sick.
Even More Responsibility
Owning a home requires more than just financial responsibility. Although it may sound appealing to say goodbye to landlords and have complete control over your living space, this also means you’re liable for all repairs and replacements. Home upkeep and improvement can be more time-consuming and expensive than you’d expected. For example, do you plan to buy a lawnmower or hire a yard service? This may seem like a small detail, but these expenses can add up quickly.
Flexibility in Your Wish List
At one point or another, we’ve all envisioned our dream home whether it has granite countertops, a sprawling backyard, or a beautiful pool. Unfortunately, some of these luxuries come at a premium that you might not be able to afford right out of the gate. When you’re looking for homes, you need to entertain compromises in order to accommodate your price range. If you absolutely cannot live without everything on your wish list, it might be best to hold off and keep saving money until you can actually afford all of these amenities. Just remember, you can always make smart home improvements to make it your dream home without incurring the expense of some of these luxuries.