Dreaming of buying a home?
Some Americans grew disillusioned with homeownership during the housing bust, but the real estate market is showing signs of recovery in many parts of the country.
Before you buy a home, though, consider these five questions to gauge your readiness.
Why do I want to buy?
Buying property simply because “everyone else is doing it” or “it’s the American Dream” aren’t good enough reasons to take out a loan for the next 15 or 30 years.
And while many people refer to real estate as an investment, it’s not a guaranteed return. Real estate values fluctuate over time, and it can be hard to predict what will appeal to buyers 5, 10, or 15 years in the future. That’s why experts recommend buying a property that you’ll enjoy.
Some people do make money flipping properties, but it’s not for the faint of heart and requires deep knowledge of the local market and renovations.
Think about your motivations for buying a home so that you can match your goals to the right property. Tweet this
Do I have my finances in order?
In order to qualify for a mortgage, you’ll need to demonstrate a solid credit history and steady income.
In most cases, you’ll also need a down payment. Mortgage lenders typically like at least 20%.
FHA and VA loans allow for smaller down payments, but this may also mean a higher interest rate and paying for private mortgage insurance (PMI for short).
Several months before you apply for a mortgage, check your credit report for any errors. You may need time to dispute errors or work to boost your credit score so that you qualify for a mortgage or qualify at a better rate.
Some real estate agents will not show you properties until you have a pre-approval letter in hand. This helps you and the agent focus on properties that are within your budget.
Am I realistic about the market?
Some markets suffer from low inventory, so properties wind up in a bidding war. Some have a surplus of McMansions but not many starter homes.
Before you start looking in earnest, do your homework and perhaps attend a few open houses or talk to a couple of real estate professionals about your expectations.
First-time buyers may need to scale down their expectations to find something in their price range.
Don’t forget to factor in closing costs, property taxes, condo fees, and other expenses into your calculations on how much mortgage you can afford.
Just because you pay $800 per month in rent doesn’t mean you should get a mortgage that costs $800, because there are added expenses that renters don’t have.
How long am I planning to live here?
If you’re planning to own a property for just a few years, then you may want to continue renting.
Even if the property’s value increases in that short window of time, closing costs like lawyer fees or real estate commissions can eat into your profits.
That’s why many experts suggest that you should plan to own a property for at least five years.
Homeownership often makes the most sense for people who plan to settle down in a place long term.
Can I handle repairs and unexpected costs on my own?
When you rent, a broken water heater or leaky roof is almost always the landlord’s responsibility. But when you own property, it’s your problem.
Making basic repairs yourself instead of hiring a handyman could save some money, but there are often surprise expenses like a condo association’s special assessment or a jump in property taxes that may be unavoidable.
Make sure you have a healthy emergency fund to cover these costs.