The concept of buying a home is naturally burned into the human psyche. While there are a large number of renters in the world today, for most of them it is only a temporary transition period until they can finally get a home of their own. Ever since man emerged from the Stone Age the desire to settle down on their own piece of land has been growing inside them. If you like early man, a renter that is looking to come out of the Stone Age and finally settle into a home of your own, how will you know when you’re ready? Here are a few things to consider.
You Have an Efficient Budget
Successful homebuyers are good money managers; they have set a budget for themselves and they are able to stay within the parameters of that budget. Owning a home will come with its own expenses but if you already know how to manage your money the transition will be smooth. On the other hand, if you are struggling to stay within the confines of your income right now perhaps you’re not quite ready for a major home purchase. According to Melinda Fulmer of MSN Real Estate,
It’s important to be realistic about what you can afford each month and still maintain the lifestyle you want, complete with vacations, piano lessons and the occasional dinner out.
If you don’t already have a budget for your home then it’s time to get one started. Before you can make a home purchase you need to know exactly where you stand financially, how much money you have, where it’s coming from, and how much you can expect to pay out. Without this information you are going into a home sale blind.
Your Down Payment
Very few homes will sell without a sizable down payment to get the ball rolling. You should expect to pay anywhere from 10 – 20% of the total purchase price of the home so you should have been socking away a bit of cash for a while now. As the market begins to slow, having the money to put down will be more important than ever. While historically the recommended down was 20%, it has begun to lower in recent years. According to real estate writer Jonnelle Marte,
The average down payment in purchases with a 30-year fixed rate mortgage dropped to 16.1% nationwide in May from 17.6% two years ago.
But a lower down payment does not mean you are financially free, you should understand that the down payment is only the means to get the ball rolling on a home purchase, you will need to be prepared for other costs as well; closing costs can run 3 – 6% of the purchase price, property taxes, escrow fees, moving expenses and more. Aren’t you glad you set up that budget now?
Your Debt is Under Control
It is rare that you’ll come across a person that is completely debt free; everyone has some kind of debt or bills to pay. The question lenders are most likely to ask is not whether or not you have debt but what is the ratio of your debt to income? They will need to see that your monthly income is sufficient enough to pay for your housing costs, taxes, and insurance will not be eating away at your influx of cash. Generally speaking your total household expenses should not run more than 35% of your total pay. With that threshold, the rest of your money can be used for personal living expenses, credit cards, savings and so on. Make sure that your debt to income ratio is ready for a faster credit approval.
According to a recent Money Talks News Report, first time homeowners have been instrumental in reinvigorating the real estate market these days. With the cooling costs of the real-estate market, now is probably the optimum time for new home buyers to negotiate a good deal however, it is extremely important that you make sure that you are ready emotionally, mentally and financially as well for this long-term commitment.
