Buying a house is a significant milestone in one’s life and financial journey. Achieving the “American Dream” of owning a home is something many look forward to and is no doubt a wonderful accomplishment! However, there are times when it’s not the only answer to your housing needs. Sometimes, renting may actually be the better answer based on what phase of life you’re in. The lower costs and responsibilities associated with renting can allow you time to build the credit and savings you’ll need to comfortably acquire a property. It also offers more flexibility than owning if you need to move.
On the other hand, real estate can be a great place to invest your money [if done with careful consideration and preparation]. Before taking the plunge into homeownership, it’s crucial to assess whether you’re truly ready for this major commitment. To help you get started, we’ve named a few key factors to help you assess your stance.
- Examine your credit score and financial health. A strong credit score will work in your favor when it comes to qualifying for a mortgage! Aim for a FICO score above 700 to put yourself in the best position to receive a desirable interest rate.
- Assess your debt-to-income ratio to ensure you can comfortably manage mortgage payments. As a rule of thumb, your mortgage payment should typically not exceed 25% of your gross monthly income, and after factoring in other monthly debts you may have (auto loans, student loans, etc.), it is preferred that they total no more than 40%. This is referred to as your “Debt-to-Income Ratio” or “DTI,” and is an important tool lenders use to qualify their applicants. When running the numbers, make sure to note that lenders calculate DTI using gross monthly income (before taxes and other deductions).
- Budgeting for unexpected expenses is a must. Be sure to account for the extra cash required for repairs and upgrades. If the A/C unit goes out or you need a new roof, are you confident you’ll have the funds to fix it? If you want to rip out the carpet and install wood flooring, or upgrade the appliances, are you able to pay for the materials and labor without stress? Do you have the discipline to budget for unexpected expenses? Consistently contributing money to a fund for maintenance and upgrades is an important factor that shouldn’t be forgotten when considering homeownership.
Stable Employment & Long-Term Commitment
- Assess the stability of your job and career. Evaluate the potential for future job changes or relocations. In addition, make sure you have an emergency fund that will cover your fixed expenses (like your mortgage) in the event of an unexpected job loss. If you feel secure and likely to stay in your job for an extended period of time, and have an emergency fund in place, it may be a good time to consider buying a home.
- Decide if you’re ready to commit to a specific location for several years. Consider your personal plans for the long-term. Do you have room to grow in the home and are you okay with living there for 5-7 years? Since the additional costs that accompany the purchase of a home are so large (i.e. closing costs, property taxes, insurance, moving, etc.), it could take several years for those costs to be spread out and bring you a return on your investment. The real estate market is also ever-changing, so having to sell in a buyer’s market could mean you get less than what you paid for it. However, since real estate values trend up in the long run, there’s a greater guarantee that you’ll make money from the sale if you hang around a while.
- Evaluate your lifestyle and whether it aligns with the responsibilities of homeownership. Homes need routine maintenance to keep them in good condition. Are you willing to commit the time and money to the upkeep your home will require? Taking good care of your property is an important part of ensuring you’re making it a healthy investment.
- Familiarize yourself with the home-buying process, from mortgage options to closing costs. If you need a good place to start, we would be happy to send you a digital copy of our Buyer’s Guide, which illustrates the process step by step. We can also connect you with local lenders in the Central Texas area. We want to help you feel confident and informed when you start your home search.
- Research the real estate market in your desired location. Understanding current trends, property values, and potential future growth is an important part of making a good investment in real estate. Any one of the agents at C21BB would love to share their insight on the local areas and help you choose the right property. We’ve lived and worked here for a long time, and like to think we know the area pretty well!
Are you ready to start your home search?
By carefully evaluating these aspects, you can better determine whether you’re truly ready to embark on the exciting journey of homeownership. Taking the time to assess your financial, emotional, and lifestyle readiness will set the foundation for a fulfilling and rewarding homeownership experience. If you think you’re ready to get started, or if you’re unsure and would like to ask an experienced agent, we would love to meet with you. Just contact us to request a complimentary consultation!