If you’re thinking about buying a home, you should first get your finances in order because you need to make sure that you’re ready. It’s so important that you should look at them well before you’re ready to apply for a mortgage. That way, you’ll have some time to improve your finances and your credit. While many people say that everyone should buy a home, it just isn’t true. If you sign on the proverbial dotted line for a new home when you’re not financially ready, it will turn out to be a curse instead of a blessing. The house will own you instead of the other way around. But if you’re financially ready to purchase a home, it can be a wonderful and rewarding experience for you and your family.
When You’re Financially Ready to Buy a House
You’re ready to buy a new home if the following are true:
You’re free of debt with a full emergency fund — This means that all of your debt is paid and you have saved up enough for an emergency. You have no more credit card balances, car payments, student loans, or anything else for which you owe money. Once you have all your debts paid off, you will need to have an emergency fund that will pay for 3-6 months of all your typical expenses.
You have a good down payment — The best way to buy a house is to put 100% down. But if paying cash isn’t within your reach and you want to take out a mortgage, you will need to make a good down payment. A 20% down payment is ideal, because you’ll avoid having to pay for private mortgage insurance (PMI). It’s a fee that insures the lender (not you) if you don’t make your mortgage payments. If you’re a first-time home buyer, a 5-10% down payment is okay. But you should plan on paying for PMI and getting rid of it as soon as possible.
You can afford to pay monthly house payments and home maintenance — You’re ready to buy a house if you have enough money to make the house payments, which should never be more than 25% of your take-home pay. If it stretches beyond that, your budget will be much too tight. Tying up that much of your income toward a house payment won’t leave you with enough money to put toward other important financial goals (such as saving for retirement).
You can pay your own closing costs — Some home sellers will offer to pay for closing costs so they can “sweeten the deal,” but you’ll never benefit from it. The buyer’s portion of the closing costs will be approximately 3-4% of your home’s purchase price. So for a home that’s worth $300,000, it will be anywhere from $9,000 to $12,000.
You can cash flow moving expenses — Buying a house will also mean that you’ll be moving, so you need to make sure you have a separate pile of cash saved up for that expense. It may be as cheap as getting a few pizzas to bribe your friends into letting you use their trucks. But if that won’t cut it, you can put aside some money for a moving and storage company.
You plan on staying put for a while — You also want to think about whether you’re ready to stay in your home for more than a few years. In fact, buying a house is a bad idea if you’re not planning to live in it for at least five years. It takes at least that long for a home’s value to grow enough to where you’re not losing money when you sell it. If you’re in an area where home values have increased over the last five years and houses for sale don’t spend a great deal of time on the market, buying a house in this area might work in your favor.
You have an experienced real estate agent you can trust — It can be hard to find a home you love that’s also within your budget, but it can be a lot easier if you’re working with an experienced real estate agent. In most cases, the home seller pays the commission to your agent. So, you pay nothing for their help. A buyer’s agent can also save you thousands of dollars on your dream home by working for your best interests during the negotiation process. This person will also be able to take care of all the proverbial red tape with regard to the laws and regulations that are specific to your area.
If you’re looking for one of the best home builders in Corpus Christi, be sure to get in touch with Devonshire Custom Homes.
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