As most people know, for many, part of the American Dream involves home ownership. Owning a home can be awesome if everything is in order, but for a variety of reasons, there are some people who simply aren’t yet suited for home ownership.
Are you one of these people with homes dancing in their heads? Do you spend countless hours on Zillow or Pinterest day-dreaming about what it’d be like to have a place of your very own?
While you may want to end the cycle of paying rent to someone else so you can start building equity in something all your own, that’s a very big decision to make. Here are some things to consider if you are thinking of becoming a home-buyer.
- You don’t earn enough money. You might think you make enough money to buy a home, but crunch the numbers first and see what your costs would actually be — a mortgage calculator can come in handy here. You need both upfront and ongoing money.
- Your credit score doesn't look good. Lenders are more particular about borrowers than they have ever been before. They’re wanting to see excellent credit, a good financial history, and a safety net of cash before they are willing to approve a mortgage loan with good and reasonable terms. If your credit score is under the 730 range, work on boosting your score and cleaning up your history before approaching a lender.
- You don't have enough cash for the down payment. Regardless of where your home loan comes from, you’ll need money for a down payment. Lenders will want you to have a cash amount available to be used as a down payment. Traditional mortgage lenders want to see between 10%-20% of the purchase price in your savings account. If you don’t have a cash reserve for a down payment, you’re not ready.
- You can't afford pre-purchase costs. Before you even negotiate a mortgage loan, lenders may require that you be able to cover quite a few services before they will consider approving you for a home purchase. You may need to pay upfront and out of pocket for services like structural inspections, sewer line inspections, appraisals, and overall property assessments.
- You have too much debt. Let’s say you do make enough money to afford to buy a house and make your monthly mortgage payments. You also need to factor in any debt you might have. Hint: If all your credit cards are maxed out, you may want to get those bills under control before entering homeownership.
- You don't have a reliable emergency nest egg. Owning a home is likely one of the largest financial responsibilities you’ll have in your lifetime. If paying the mortgage and all of your other bills leaves no room for the stashing of cash into an emergency savings fund, you may want to hold off on a purchase until you have a sufficient financial safety net for repairs and unexpected emergencies (job loss, home repairs, illness).