4 Questions to Answer Before Buying a Home
If you’re making major life moves—getting married or having kids—and starting to get the homebuying itch, consider asking yourself these 4 questions.
How healthy is my credit score?
A mortgage can be one of the biggest financial obligations you’ll ever take on. Don’t add to that burden by paying a high interest rate. It’s a fact that the lower your credit score is, the higher your interest rate will likely be. It’s important to boost your score before even thinking about borrowing.
One way to help boost your score is to get current on credit card and loan payments. No one is saying that you can’t have any debt before you buy a home. But, depending on how much of your income is going to pay debts such as student loans, you may not get approved for a mortgage.
What do my savings look like?
Before you’re even in position to buy, it’s important to feel confident you can continue contributing to other financial goals while having a house payment. The last thing you want is a large mortgage that takes away from your retirement plans or emergency savings. On top of staying financially secure you should be prepared to put down 15 to 20 percent on a home.
Have I accounted for ALL the costs of a home?
Your mortgage payment isn’t the only thing you’ll be paying when you become a homeowner. It includes taxes, insurance, utilities, periodic repairs, and regular maintenance. You can expect to pay one to four percent of your home’s value on maintenance per year, on things such as lawn care, gutter cleaning, snow removal, pest control, etc. The cost of homeownership can quickly snowball.
To help get a feel for what you may pay as a homeowner, look at local tax records and talk to others you know that own a home about estimates of what they pay for maintenance each year. Plug the numbers into your budget and see how they fit.
How long do I plan to live here?
When looking at buying a home, think about your future — will your housing needs be the same as your current ones? Are you expecting to grow your family? Will you be changing jobs? Factor in these possibilities, if you are anticipating a lot of unknowns, it may be better to hold off on buying a home. Buying should be something you’re committed to for the long haul.
Also, houses aren’t good short-term investments; you’ll need to own the home for at least five years to recoup the fees spent on the sale, as well as to allow you to accumulate some equity (the difference between how much you owe on your mortgage and the current value of your home).