If you're asking yourself the question, "should I purchase a home?", the answer is absolutely, yes you should! However, you should only purchase a house if you are truly in a position financially to become homeowner. Homeownership is an extremely large expenditure. Not only will you have to pay the mortgage, taxes, insurance, and any HOA fees, additionally you will need to cover maintenance and repairs. And homeownership is not as flexible as renting; when you rent, you can just walk away at the end of your lease. But as a house owner, it may be difficult to sell when it comes time to do so. If you're planning on becoming a homeowner, but they are unclear about when you should buy a house, the following are some things to think about:
How long do I plan to stay in the home? If you're currently renting and therefore are thinking of buying a house, and think you'll market it in a short time, it's probably not worth it to buy right now. Exchanging expenses is often as much as 2% to 6% from the price of the home for every transaction. If you're only going to own the home for just a few years, the price probably aren't worthwhile.
What may be the price of buying in comparison to the cost to rent? An excellent rule of thumb to make use of when choosing to buy a house is the rent-vs-buy ratio. If you take the purchase price of the kind of home you want to buy and divide it through the annual rent of the similar property, you'll arrive at the rent-vs-buy ratio. If the ratio is around 15 or less, it probably is sensible financially to purchase a house. But if the rent-vs-buy ratio is well over 20, then home ownership is far more expensive than renting.
How stable is my housing market? It is also important to consider how stable your marketplace is before choosing a house. If the marketplace is vulnerable to significant price declines, it might not be worth purchasing a home if you aren't thinking about never moving out of it. In case your time horizon is really a long one, then the good and the bad of the housing industry will matter less for you. But if your plan's to move within the relatively near term, it's important to think about the chance of further home price declines. If you need more details about the home price trends inside your local market, meet with a qualified realtor.
Am I financially sufficiently strong to become a homeowner? Of all of the questions here, this might be the most important one. Homeownership, when i mentioned, is a big commitment that you may have for a long time. You should make sure that you are financially strong enough to support the price associated with homeownership. You need to take time to look hard and honestly at your finances before beginning looking for a home. Mortgage borrowers qualifying under Fannie Mae guidelines are allowed to possess a maximum debt-to-income ratio of 45%. Quite simply, a maximum of 45% of gross monthly qualifying income can go to debt service and home-related expenses for example taxes, insurance, HOA fees, and mortgage insurance. There often is a few wiggle room in this guideline with extenuating circumstances, but this may be the general rule. Now, just because Fannie Mae says buyers can go up to a 45% DTI does not mean they ought to. I usually advise prospective homebuyers to purchase a house that's well below their maximum qualifying price. Ideally, you want to have the ability to remove a 15-year fixed loan with a 20% deposit. This can allow you to take advantage of some of the lowest financing rates available and make equity quickly while still locking inside your rate for the lifetime of the borrowed funds. However, I know that some markets are more costly than others along with a 15-year loan may be difficult to manage. The key point is you avoid overextending yourself.
If you are planning to make your first home purchase in the next couple of years, the following are some things you can begin doing now to put yourself in the perfect financial position to become homeowner:
Maintain a favorable credit rating. Credit is an extremely important a part of qualifying for financing. If you have poor credit or damaged credit, it can make it much tougher to be eligible for a a home loan or could disqualify you altogether. Because credit issues may take some time to resolve, it's important to begin fixing any issues well before you begin shopping for a home. Not to mention, it's absolutely vital that you make your payments on time and never overleverage yourself.
Pay off debt. If you are carrying auto loans and high charge card balances, it's a excellent idea to start paying those off. This helps your credit rating, make it simpler for you to qualify, and will make it easier and more comfortable for you to carry mortgage payments.
Get on the savings plan. Just because you can put 3.5% down on an FHA loan does not mean you need to. Typically whenever you pay under 20% you incur mortgage insurance, which could potentially cost hundreds of dollars per month depending on the size of the borrowed funds. Making the effort in order to save up for a 20% deposit will help you to take advantage of the best loan rates available, will lower your payment, and will assist you to avoid expensive mortgage insurance premiums. On top of that, you will have equity in your house right off the bat. Personally, I have faith that any home worth owning is a home worth saving for. It's worth making the effort to save up a payment in advance.
Hopefully these tips are of help! Becoming a homeowner is exciting, but it is important to maintain a strong budget before you purchase a house so that homeownership will be more enjoyable and fruitful. So, if you're wondering, "should I buy a home?", the reply is absolutely! Only with the right timing along with a strong financial position.