So You Think You Are Ready To Buy A Home
Renting versus buying? Every adult at some point in there lives has had to look at the pros and cons of each. Buying a home under the right circumstances is a blessing, but buying a home under the wrong circumstances is a curse. The right circumstances to buy a home are:
You are debt free
There is nothing financial worse than packing debt on top of debt. If you are already paying student loans, credits cards and an auto loan and you put a mortgage payment on top of that, you are cursing your financial future. If you are already in this situation you need to aggressively pay these off immediately. If you are contemplating buying a home (with other debts)…WAIT!!! Pay off these debts first and then revisit purchasing a home. It will pay off in the end. (See my Free Man’s Slavery blog if you need tips on paying off your debt.)
You have a fully funded emergency fund
As I stated in my Rainy Day Fund blog, you can determine what you feel comfortable with having in an emergency fund over the three month minimum. Just make sure this is in your savings or money market account before you purchase a home. There are many things that could breakdown in your home once you purchase it and you need to have the money to repair it as you are now the landlord. If you lost your job or are unable to work for a certain period of time you will need to have money to keep a roof over your head. Without this emergency fund in place your emergencies will be crisis instead of inconveniences.
You have 20% down payment plus closing cost saved on top of your emergency fund
There are a lot of mortgages out there that will let you borrow with little to no money down and roll the closing cost into the loan. What most people do not take into consideration are the fees and interest on these loans. These extra cost can be avoided with patience and a plan. Wait, save and invest the extra money you would have paid in excess fees. You will come out better in the end.
You qualify for a conventional, fixed rate mortgage
FHA, ARM or interest only mortgages have very high cost. If your credit does not qualify you for a conventional loan then you are not ready to buy a home. Go read my Credit Commandments blog and put the commandments into action. You should have stellar credit in no time.
Your mortgage payment will be 25% of your income or less
If you have great credit mortgage lenders will qualify you for mortgage payments that are 35-40% of your income. Do not become house poor. I do not care if you get a 10, 15, 25 or 30 year mortgage as long as you meet the 25% rule. Make sure you shop around for the best terms. Typically the best terms are on the shorter loans so if you can afford a shorter loan term then go with that one.
You will aggressively pay off the mortgage
If you pay an extra $520 a month on a $200K 30 year fixed rate loan, you will save $89k in interest and cut the life of the loan in half. As you can see, you can save thousands in interest by aggressively paying off your mortgage early. The banks want you to only pay the minimum on your mortgage so that they can maximize the amount of money they earn from you. The more money you put in the banks pocket the less money you have in your own.
Hopefully, these tips will help you know if you are ready to purchase a home or not. If you have met all the criteria above Congratulations. You are ready to purchase a home.
1) If you do not meet all the criteria above and would like to purchase home take steps today towards your goals.
2) If you already have a home and cannot afford the payments don’t drown unnecessarily. Talk to a specialist and ways you can get out of this situation.
3) Leave a comment below and follow me.