Is It Time To Buy A New Home?
With housing prices dropping and interest rates remaining low many people are considering purchasing a new home, either for the first time or as an upgrade. But is now the best time for you to make a major purchase like that?
Buying a new home is a major purchase that will have a direct affect on your personal finances for many years. Are you ready to make that commitment? Only you can answer that question.
Here are some things you need to consider before you can answer that:
1. Can you afford to make a considerable down payment without borrowing? The greater the down payment you make the less your mortgage will be.
Professional financial advisors suggest you pay a minimum of 20% down when you purchase a new home. Some lending institutes may even require a down payment of 20% before they will give you a mortgage.
The catch here is that you should be able to make the 20% down payment without borrowing the money. This is cash you have on hand for this specific purpose.
2. Can you afford to make the payments? You can secure a mortgage for as much as 30 years if you want to - that's a lot of monthly payments. Are you secure enough in your job to commit to this?
Personal financial advisors suggest that no more than 40% of your monthly income should go towards debt - this includes credit cards, bills and the mortgage. Can your job support this? Does your work leave room for promotions and raises?
3. Do you know where you want to settle? Purchasing a new home is usually considered part of a long-term plan. Do you know where you want to live for the next 10,20 even 30 or 50 years?
Of course, selling your home in the future is an option but it could be an expensive option. If you don't have your mortgage paid off when you want to sell then there will probably be hefty fees involved. If the housing market is in a slump you may loose money when you sell or you may not be able to sell your home as quickly as you want to.
4. What is the purpose of the home? What type of home do you see yourself needing in the future? Do you plan on having a family? How many rooms will you need? How many bathrooms?
If you are purchasing a home that you expect to put a family into you will have different needs than a home for a single person. Although, you could always purchase a home with the plans of upgrading in the future if you need to - but this could get expensive.
There are other factors to consider as well before you purchase a home but these are the big ones. You need to be able to afford it. You need to be able to put a sizeable down payment down. You need to know where you want to settle long-term and you need to know what type of home you will need.
If you take the time to honestly answer all these questions you will have a better idea if purchasing a home is something you want to do now. For some people it may make more sense to wait until they are in a better financial situation before buying.
Don't take on more debt than you can handle. It is very hard to climb back out of the debt trap once you fall into it.