You’ve decided it’s time to buy a house. Maybe your family situation has changed and you’ve outgrown apartment living, or maybe you have looked at it financially and it seems to make more sense to own than to rent. Maybe your current home just isn’t cutting it anymore and it’s time to move out and up.
Making the decision is a great first step, but it’s only the first step. There are more things to consider before you can know if you are truly ready to take on home ownership.
Do you know what you want in a house?
This is the easiest part. No doubt you have already made a list of the things you want in a house. It’s the same list that made you decide to buy a new home in the first place.
If this list exists only in your head it’s time to get it on paper. Make it real and if possible order it by priority. You may have to give up some things on that list to get others.
How much are you looking to spend to buy a new house?
Depending on the size of house you are looking for and the area in which you want to live, house prices can vary wildly. Its a good idea to go house hunting armed with a dollar amount that you are willing to pay.
It’s fun to look at dream homes, but if you are serious about making the move then you should be focused on what you are realistically willing to spend.
How are your finances, currently?
A house is probably the largest and most important financial commitment you are going to make. Before you make that commitment you need to have the rest of your finances in order.
If you are currently paying off a significant number of debts it will be hard to find lenders willing to finance your purchase.
Most lenders are looking for a Debt to Income (DTI) of significantly less than 50%. You might want to pay off some of your other commitments before making the move
Can you afford the down payment for a new house?
If you have found the perfect house and a great lender you are still going to have to pay a significant amount of money up front.
Depending on the lender and the type of loan you can expect to pay somewhere in the neighborhood of 20% as a down payment. That’s money you need in the bank just to get the ball rolling
What is the housing market like at this time?
Everything still looking good? Great.
Now you have taken into consideration everything you have control of but there are other things to look at. Most importantly the current housing market in both the area you are selling your house in or the area you are looking to buy in.
Market forces in either area could mean it’s either better keep renting or keep your current house until it’s more of a seller market. Likewise, it might be a smart move to wait until house prices drop enough to make buying a better value.
How long are you planning on living in your new home?
Buying a new house is a big deal. It’s a huge investment in money, time and stress. If you want to make the most of that investment you need to be ready to stay put for a while.
If you don’t plan on staying a few years at least you could be looking at paying a capital gains tax when you sell the house. It may not be time for you to buy a house if you aren’t ready to settle down for at least 5 years.
How’s your DIY game? Can you fix things around the house?
If you are renting now then you may be taking for granted all the little things the landlord is doing for you.
Backed up toilet? Call the landlord. Roof leaking? Call the landlord. Bugs, tree limbs, air conditioner goes out. Call the landlord. When you are a homeowner, you are the landlord.
If you aren’t good at taking care of, and/or repairing your home, you could pay a significant amount to people willing to do the job for you. There is absolutely nothing wrong with this, but either way it needs to be addressed when making the decision to buy a new place. Add the cost in money and time for upkeep into your budget.
So, are you ready to buy a house? You can’t really know until you look at everything involved. Emotionally you might be ready but take a good hard look at your finances, the markets, and your lifestyle and plans for the future.
There are countless other factors to consider but this list is a great place to start.