Are you considering buying a house, but you are not sure if now is the right time to buy? If so, here are a few simple questions you can ask yourself in order to determine if you are really ready to take the plunge into homeownership.
Am I Familiar with the Market?
Familiarity with the market will give you an idea of how much you can expect to pay for the house that you want. To become familiar with the market, pay attention to the houses that are listed in the neighborhood where you want to live and look at how much the seller is asking for the house. Knowing the asking prices for homes in the market where you want to buy is the first step toward determining if you have enough money to buy now.
Do I Have Enough Money for the Down Payment and Closing Costs?
As you assess your financial situation, you also need to consider whether or not you have enough money saved up for a down payment and to cover the closing costs. Your down payment is a percentage of the agreed upon price of the property. This can range anywhere from 3 to 20 percent or more. If your down payment is less than 20 percent, you will likely be required to purchase Private Mortgage Insurance (PMI) in order to protect the lender. Closing costs, on the other hand, consist of a number of different fees and payments. These typically include taxes, title insurance and points that you purchase in order to bring down your interest rate. Closing costs usually cost anywhere from 2 to 7 percent of the value of the property.
How Much Can I Afford?
To get a better idea of how much you can actually afford to pay for a house, you need to take a closer look at your income and your debt. This includes analyzing how much you owe on credit cards, car loans, child support and any other bills that you might have. Ideally, all of these bills plus the expected monthly payment toward your house should be no more than 30 to 40 percent of your gross monthly income.
Do I Have Good Credit?
You also need to be honest with yourself regarding the status of your credit. If you have poor credit, you are not likely to be approved for a mortgage loan. If you are approved, the interest rate may be quite high. In this case, it might be better for you to take the time to rebuild your credit before you start looking for a house.
Am I Aware of the Expenses Associated with Homeownership?
As a homeowner, you are responsible for paying expenses in addition to your monthly mortgage and utilities. This includes paying for the cost of maintenance and repairs. As a renter, these expenses were paid by your landlord. Therefore, you need to ask yourself if you are prepared to handle the extra costs associated with homeownership.