My living situation growing up was not exactly normal. I grew up on a compound in upstate New York that encompassed several houses, multiple family units and absolutely NO privacy. In fact, it wasn’t until last year that I realized I had grown up in communal living. For a lot of families this is normal, and mine was no different, but it left me with an overwhelming need to establish my own “place” after college. A spot where I called all of the shots and where privacy was no longer an issue. I wanted to buy a house! ASAP!
It was 2010 at that time and everyone in the real estate profession was shouting to buy a house now. “Interest rates will never be lower!” “It’s a buyer’s market!” Sometimes these external voices can be louder than your inner voice, but it’s important to listen to yourself first.
Here are some tips to assess whether you’re ready to buy a house:
Do You Know How Much You Can Afford?
There’s a reason I ask this question first, because if it doesn’t make financial sense for you, then we can skip over all the other questions until you’re able to formulate a hard numbers answer to this. I’m sure you already know about the down payment amount you’ve been saving for, but what about all of the other costs? Between closing costs, inspection and repair costs, Private Mortgage Insurance (PMI), real estate taxes, home insurance, etc., things can get out of control quickly. This means you not only need to know how much you need to save for your initial cash outlay, but also what your payments will look like on a monthly basis.
Working with a mortgage broker can only get you so far. Sure, she will ask you your income amount, and have you list out any debts you have, but ultimately you are the only one who knows how much you need to live every month. When I went to buy a house, my mortgage broker approved me for a $450,000 mortgage. Yet, when I calculated what I actually felt comfortable paying on a monthly basis it was closer to $260,000. Everyone is different, but for me I wanted to have some wiggle room for saving and enjoying things I love to do like traveling. A $450,000 mortgage would have been too stressful for my financial tolerance level.
No matter how you approach this, the bottom line comes down budgeting and knowing your financial self. Have your monthly payment amounts in mind when you talk to a mortgage broker and let her determine how much house you can afford for that amount. She should be including interest, taxes, PMI, and insurance in that estimate. Also, remember that your taxes are always more likely to increase than decrease, so allow yourself some breathing room for when that inevitably happens.
Do You Know Your Real Estate Market?
Planning to buy a house is just like any other type of saving you may do in your life. You need to know you’re goal and what you’re working toward in order to achieve it. Keep your eye on the market that you’re interested in buying in so you can monitor the price points of the homes in that neighborhood. Sign up for a Trulia account or reach out to a realtor you trust. Realtors are always happy to send you emails with listings relevant to your interests even if you aren’t in an eminent position to buy.
Now that you have this information handy, use it as a benchmark and motivation to save up for a down payment.
Do You Know Why You Want a House?
Buying a house is often a very emotionally charged experience, so it’s important to consider your reason for buying a house. Are you being motivated predominantly by external sources? In other words, are you buying for one of the following reasons:
- Home ownership is a societal validation of success.
- Market analysts say now is the best time to buy from an interest rate or market perspective.
- You need a tax deduction.
- You found this one house you love and you’ll never find a house you love that much ever again.
If any of these reasons apply to you, step back for a minute and make sure that you are really ready to purchase a house. A house should make sense for your lifestyle and your budget. Make sure those two goals are aligned and try to block out the external distractors.
Is now the right time for you?
So how do you know if it’s the right time for you to buy? It’s the right time when:
- You have NO credit card debt.
- Your credit score is good or excellent.
- Your lifestyle is secure and you don’t see any large changes on the horizon.
- Your budget fits the market where you want to buy a house.
- You are living below your means and are able to save extra cash each month to work towards saving for a down payment.
Good Things Are Worth Waiting For
It’s hard to wait when you know what you want, but all good things are worth waiting for. Buying a home is no different, and waiting until you have all of your ducks in a row will allow you to sleep at night without wondering if you’ll be able to pay your mortgage this month.
Written By: Lindsay Dell Cook
Lindsay Dell Cook is an accountant, turned writer and founder of Budget Babble. She lives in Philadelphia with her uber supportive husband, and enjoys taking their adorable mutt for walks or reading a good book while buried under a pile of cats.