A big backyard, a garage for your hobbies, and enough bedrooms for your growing family are all perks of owning a home, but how do you know when it’s the right time to buy? There’s a lot to consider before purchasing your first home, so we’re outlining the answers to some essential questions. If your answers are a resounding “YES!” then the time may be right.
Can you afford to buy a home?
Perhaps the most important item to consider is whether you can really afford to pay a mortgage and all of the other costs associated with homeownership. Online mortgage calculators are a good starting place, but there are some costs that they don’t usually factor in.
For example, you’re going to need money for both your down payment and closing costs. Most people put down anywhere from 5 to 20 percent of the purchase price, and closing costs are about 2 to 5 percent of the home’s sale price. Make sure you take both of these costs into account and save up for them before you start house hunting.
There are also monthly payments and ongoing costs to consider. You’re going to have principal and interest for your mortgage, and you’ll also have homeowner’s insurance, property taxes, mortgage insurance, and sometimes a homeowner’s association fee. You should also expect to spend about 1 percent of the home’s sale price every year on repairs, and more if the house is a bit of a fixer-upper.
Do you want to make a house a “home?”
Being a homeowner comes with a lot of responsibility. Taking care of your new property and the extra costs are all part of owning a home, but the perks of being the decision-maker make it worthwhile:
- Control over your living space. When you own a home, that space becomes yours. You are free to paint the walls green or knock them down entirely.
- Ability to build equity. Paying your monthly mortgage might seem like you are just paying rent, but you are not. Every month a little chunk of your home becomes your financial asset, and this is called building equity. Once you have built up your equity enough, it increases your wealth and creditworthiness.
- More predictable housing costs. When you own a home, you’re not at the mercy of a landlord, so you don’t have to worry about fluctuating rent costs. A fixed-rate mortgage can make your housing costs more predictable. An improved home value, property taxes, and insurance rates can impact your payment some, but less than a sudden rent spike.
Do you qualify for a good mortgage rate?
When you start thinking about whether it’s time to stop renting, you should pause and assess your credit score. Depending upon your score, you might want to wait and work on improving your credit before you apply for a mortgage. The extra time you spend working on improving your score could save you big in the long run.
Your credit score determines if you qualify for a mortgage at all, plus how much you will pay for it. A high credit score is likely to earn a low interest rate, while a lower score is likely to have a higher interest rate. Even just a few points higher can cost thousands of dollars in interest over the 30-year life of a mortgage.
Have you found an area and neighborhood you love?
Homeowner happiness relies greatly on where the home actually is. Finding that right neighborhood is just as important as finding the right house, and when you find that perfect neighborhood, you just know.
When you own a home, you are committing to living in that location for a while. If you are looking to move out of the area for a new job in a year or two, it might be better to rent since you are not looking at living in the location for an extended period of time.
Is now the right time?
Buying a home is a momentous occasion, and it is important that you are really ready before you take the plunge. The amount of costs can be daunting, but Lincoln Lending is here to walk with you every step of the way so that you can focus on the excitement of the purchase, not the stress. If you’re ready to begin your homeownership journey, get in touch today.