1: Are your financials in order?
In determining if you can afford a house, the bank is going to look at three major factors.
- How much credit card debt do you have?
- How about auto loans, student loans, or personal loans?
- How is your credit score?
If you are confident in those three questions, meaning that you don’t have much debt, your loans are at a minimum and you have a pretty good credit score, you are probably ready for the next step. However, if you are still paying quite a bit back from college, your credit score could be better and you find yourself needing to use your credit card quite a bit, if might be best to wait until those are in order before moving on.
2: Do you have enough in your savings for a down payment?
Today you can buy a home for as little as 3.5 percent down payment. On a $200,000 home that’s just $7,000. When you are calculating that, you also need to add in some other important costs, such as closing costs, insurance, taxes, and money for repairs and furnishings to turn the house to a livable home. These additional costs could easily add thousands of dollars to your bottom line.
3: Are you ready for the payment?
I’ve heard from many people that renting is just a waste and that you should just own and many times that’s a pretty accurate statement. In truth, the amount you pay in rent probably would be similar to the amount you would pay in principle and interest on your mortgage loan. In owning a home there are some other costs that don’t want to be forgotten about:
- Property taxes
- HOA (homeowner’s association) fees
- City assessments
- Water, sewer and/or garbage
- Other utilities your landlord may cover
To get a good idea of what the monthly cost of owning would be, try out this calculator, but make sure to go to “Advanced Settings” for all of the potential costs!
4: Are you going to stay put for a while?
Your home is a long term investment. Home prices, on average, appreciate around three percent per year. In other words, if you buy a home and sell it within a year or two, there’s a chance that the increased value (if any) won’t even cover the closing costs you paid to buy the house. It’s recommended to stay in your home for at least five years. If you aren’t ready to commit to that length of time yet, that’s ok! Just wait until you feel confident in that type of commitment!
5: Can you fix what needs to be fixing?
With renting you could always call the landlord to come and fix a leak, but when you become a home owner, you have to be able to fix your own problems. When you are the owner, you need to be able to fix problems yourself or the resources to pay someone else to fix them.
If you can fix things yourself, you can save on labor costs, but material’s will still quite a bit. Are you ready for that?
So, are you ready to buy a home?
Did you answer “yes” to each of those five questions? If you did, then you need to talk with an Ann Den Boer real estate agent in Sioux Falls today!