As a short sale and distressed property expert, I encounter many people who were first time home buyers pre-housing crisis. These people were duped into bad loan terms or purchased a home only to be upside down on their mortgage a year later. Now that the market is in recovery, I think it is important to learn from this situation. Home ownership is still the American Dream and if these 6 signs apply, you very well may be ready to purchase your first home!
You have a Budget – and you use it!
The cornerstone to financial success is knowing where your money comes from and where it is going each month. This is the first step in deciding if you can buy a home. Many people hear that it is cheaper to own a home than to rent a home. While it may be true that a mortgage payment costs you less per month, you also have to budget for the additional expenses. You have to pay property taxes, homeowners insurance, homeowner association dues, and any unexpected maintenance. If your current budget can cover these costs, you’re off to a good start!
Debt doesn’t control your life
Before a lender gives you a mortgage, they will look over you debt ratio; this is the amount of debt over your income. Your monthly housing costs should not exceed 33% of your gross monthly income. This includes you mortgage payment, interest, taxes, and insurance. Your debt payments from things like credit cards, car payments and student loans should be less than 38% of your monthly income. It is a good idea to avoid taking on large purchases in the year leading up to buying a home – avoid buying a car or charging that cruise to Cozumel to your credit card.
You have a Reliable Source of Income
Buying a home is a long-term commitment which means you need to have a long-term, consistent source of cash flow to cover the monthly expenses. As a short sale specialist, I deal with many clients who took on home-ownership after starting a new job. While this may seem like a good time to buy, what happens if you find this new job is not a good fit? Many people also decide they must buy a home when they are starting a family. However, they do not fully anticipate the expenses – or the loss of income if one spouse decides to leave the work force. It is important to be sure your financial situation will not experience any radical changes in the next few years.
You have a Sizable Emergency Fund
You should have enough to cover your expenses for at least 6 months – 9 months would be even better. This would sustain you in the event of a job loss, illness or other emergency that causes you to lose part or all of your income. All of the clients I represent that are facing foreclosure have what is called a “hardship” – that is, an unforeseen loss of income from things like unemployment, illness, divorce or sadly death. In the event of such an unexpected and distressing event, you need to have a safety net to get you through it.
You have a Sizable Down Payment
You have been dreaming of home-ownership and have saved a portion of each paycheck each month. To be competitive will need to put 20% of the home price down. That means for a $200,000 home you should have $40,000 to put as a down payment. There are ways to have a lower down payment, such as an FHA loan, but they are not as competitive in the current market.
You are ready to be your own landlord
Are you ready to renovate, repair, and maintain a home? One of the biggest adjustments when buying your first home is realizing that if the air conditioner is broken or a pipe bursts under a sink, it is up to you to fix it – on your dime. Not only is purchasing a home a financial commitment, it takes your time and energy too. In order to retain equity in your home you need to maintain it- this means repairing the roof, landscaping, cleaning the gutters, painting the exterior etc. Now, it is not as scary as it sounds. Owning your own home is a labor of love. The pride of ownership, of having your own private sanctuary is greatly satisfying.
If you think you may be ready to buy your first home, or if you have questions about your current situation, I would love to help you!
Keller Williams Advantage 2 Realty
Orlando, FL
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