Purchasing a home is a lifestyle choice that requires you to think about how you like to spend your time and the type of community you want to inhabit.
Whether you’re a first-time buyer or a seasoned owner, buying a home requires thoughtful planning, commitment, decisive action, and a helpful team of experts. Expect to consult with a lender, a lawyer, a REALTOR®, an appraiser, and a host of other real estate professionals working on your behalf throughout the home buying process.
Before you embark on this all-important journey, you should know the psychology behind the decision you’re making.
Why Do You Want to Buy a Home?
The emotional part of your decision comes into play when you think about why you want to move. If you’re a first-time buyer, you’ll need to have career stability and a desire to commit to living in the same community for five to seven years. You should want to establish roots in a neighborhood and look forward to decorating as you please without requiring a landlord’s permission.
Purchasing a home is a lifestyle choice that requires you to think about how you like to spend your time and consider the type of community you want to inhabit, be it a rural area without nearby neighbors, a high-rise building in a city, or a home within a planned community with recreational amenities.
The more you understand your priorities for a home, the easier it will be for you to narrow down your real estate decisions.
Homeownership is a powerful way to increase your personal wealth because you’ll build equity in your home as you pay off your mortgage.
Are You Financially Ready for Homeownership?
While your dream home may not be within reach right away, you can take steps to becoming a homeowner the moment you earn your first paycheck.
In order to qualify for a mortgage, you’ll need good credit, a pattern of paying your bills on time while still saving money, and a maximum debt-to-income ratio of 43% or less (debt-to-income ratio is your gross monthly income compared to your minimum monthly payments on all recurring debts). Some lenders have even stricter guidelines, so the lower your debt-to-income ratio, the better your chances of a loan approval.
While loan programs are available with low down payments of 3.5% to 5%—and a few programs offer no down payment at all—you’ll still need some savings to pay for closing costs, moving expenses and an earnest money deposit on a home. It’s also wise to have cash reserves on hand after you buy to help cover any unforeseen changes in circumstance.
Saving money and preserving or improving your credit history are essential success factors on your path to homeownership.
How Much House Can You Afford?
Housing prices and rental rates vary from one location to another. Use a Rent vs. Buy calculator to estimate the difference between your current rent payment and what you can expect to pay if you buy a house. Be sure to play around with the numbers, changing the scenario for different budgets, neighborhoods, and fluctuating financial situations.
In some markets, buying a home can cost the same or even less than renting. Use a home affordability calculator to help you estimate how much you can afford to pay for a property of your own.
Don’t be afraid to look outside your target neighborhood, especially if this is your first property purchase. It’s customary to build equity with a “starter home,” then work your way up to the home of your dreams.
Think about your plans for the future: how do you spend your money? How comfortable are you with a monthly mortgage payment? How high can that payment be before you have to make a dramatic change to your lifestyle? A lender will tell you how much you can borrow, but that lender won’t know how much you spend on travel or golf, or whether you plan to reduce your work hours if you decide to start a family.
And remember: as a homeowner, you’ll pay for more than just mortgage and utilities: you’ll also pay for homeowners insurance, property taxes, HOA dues, and cover any general maintenance and needed repairs as they come up.
You can’t call the landlord when the toilet breaks anymore, because you’re the landlord now.
Once you’ve thought through the emotional and financial aspects of becoming a homeowner, your next steps should be to find a reliable, experienced REALTOR® like Julie, and meet with a reputable lender who can discuss your options for financing your homeownership dreams.