Home Ownership Part One

Home Ownership... Are you ready?

Because buying a home is one of the largest financial commitments you will make, it’s important to know what it involves.

First, there are several questions to ask.

Are you budget ready to buy a home?

It’s important to evaluate your financial situation and determine whether you’re ready to become a homeowner.  It’s a significant, long term financial responsibility.  Jumping in before you’re ready can result in significant financial distress.

Do you have a budget?

Consistently budgeting means you know where your money comes from and where it goes each month.  This is a key piece to budgeting, and being able to buy a home.  Being able to pay your bills each month without accumulating debt is also very important.  Do you save regularly and consistently?

Do I have a steady source of reliable income?

A stable income and one to two years of employment history at your current job are helpful in obtaining a mortgage.

Have you saved money for your down payment?

Most mortgages require a down payment. The larger your down payment, the less interest you’ll end up paying on the loan. If you can save up the thousands of dollars required for a down payment, chances are, you’re in a good financial place to make a home purchase.

If you buy a home, will you be able to pay your mortgage each month and still maintain a healthy budget?

If you can answer yes to these questions, then keep reading.

How much home is affordable for you?

This is dependent on two main factors – the size of your down payment and amount of down payment in proportion to the amount the home costs.  What is the difference?

Do you have a down payment?

This is the money you will pay up front toward buying the home.  The larger your down payment, the less you will need to borrow.  This gives you more equity in your home.

How much down payment do you need?

Some mortgages now only require a down payment of 3.5% of the purchase price or less.  Keep in mind that mortgages requiring less than a 20% down payment usually require the home buyer to buy mortgage insurance to protect the lender in case you default.  This will increase the amount you have to pay monthly, which in turn, will increase your monthly expenses and affects how much you can afford.  When considering your down payment, don’t forget that you’ll also need money for closing costs, moving expenses, repairs and furnishings. 

How will you cover unexpected home emergencies?

There are also home emergencies?  You need to have an emergency fund.  This not only helps cover the cost of any home disasters, but will help cover your mortgage payment and other bills if you happen to get sick, lose your job or encounter other unexpected events.

Should you buy or rent your home?

How do owning and renting compare? There are pros and cons to each.  When you rent, you are usually not responsible for most maintenance responsibilities.  Your insurance premiums are lower for renters insurance and it’s easier to relocate if you decide to.  The downside to renting is that you lose the opportunity to build equity.  You can’t take advantage of the tax benefits or protect yourself against rent increases.

What are the advantages to buying a home?

You will build equity in your property, which is a financial investment.  You can also take a tax deduction for the interest you pay on your loan.  The potential return on your investment, combined with the tax benefits will often make owning a home financially preferable to renting. The sense of stability and control over your housing situation is also a benefit.

Is home ownership for everyone?

It may not be for everyone.  In addition to the monthly payments, owning a home involves time and money.  There is upkeep and repairs.  As you consider this, make sure you understand your person and financial situation.