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    Are You Ready to Buy a Home?

    Friends and clients,

    Many potential homeowners ask me this question: I am tired of paying rent and thinking about buying a home, but I’m worried about the added cost and responsibility. How do I know if I am ready?

    It’s a big financial leap to becoming a homeowner. Experts recommend asking yourself these six questions before you start your house hunt:

    1. Do you know how much you can afford? Take the time to calculate how much you can afford to buy. This isn’t the time for ballpark numbers. Overcommitting to a mortgage payment can leave you house-poor, meaning there will be very little money left over at the end of the month for other things besides your mortgage payment. Add up all of your spendings, including your current rent, food, and transportation costs. Also, factor in discretionary expenses like traveling, eating out, and entertainment. Don’t forget to include debts like student loans and car payments. Once you know how much you have coming in and going out each month, you can calculate a number you can afford to spend on housing.

    2. Do you have a down payment? You don’t need a 20% down payment to get a loan. However, putting more money down can definitely work in your favor. It can help you get better lending rates, beat out the competition in hot housing markets, and lower the amount of interest you pay over the life of a loan. Working to save for a large down payment shows financial responsibility and gets you used to living on a strict budget.

    3. Will you have money left over after closing? Your bank account shouldn’t be zero after closing. You should still have an emergency savings fund that will cover around three to six months of living expenses.

    4. Is your credit in good shape? You want your credit score to be as high as possible when shopping for a mortgage. The higher the score, the better the lending terms and rates. A credit score of 750 or higher is generally considered excellent and will make you the most attractive borrower.

    5. Have you paid down other debts? Your debt-to-income ratio plays a major role in the health of your finances. You can calculate your debt-to-income ratio by adding up all of your monthly debt payments and dividing it by your gross monthly income. The general rule of thumb is your debt should not exceed 43% of your available credit to take out a mortgage.

    6. Where do you see yourself in five years? If you don’t plan on staying in an area for more than a couple of years, buying a house might not make financial sense. The huge upfront investment, including the price of the home, plus the added taxes, closing costs, and escrow fees, might take a while to pay off.

    If you have any questions for me about your readiness to buy a home or about anything else related to real estate, don’t hesitate to give me a call or send me an email today. I look forward to hearing from you soon.

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