Let’s be honest, with the current market and artificially suppressed interest rates just about anyone can buy a house, the real question is whether you should. Simply going down to the bank, taking out a loan, and hoping for the best is a recipe for disaster. Here is what you need to know to make sure that you’re ready to take on the joys and burdens of home- ownership.
What to Look at To Know If You’re Ready to Buy a House
Figure Out The Costs
First, determine exactly how much your monthly mortgage payment will be. It may seem obvious, but not every home buyer goes in with their eyes open, as the recent mortgage crisis clearly demonstrated. There are several free mortgage calculators available on the internet, which will at least give you a place to start.
Owning a home is expensive, and I don’t mean just the mortgage payment. The minute you open the door you get to start thinking about home improvement, maintenance, and minor disaster management. How much does it cost to pump water out of a flooded crawlspace? How well insulated is the house, and how much will heat or air conditioning cost? How much does water cost in your area, and do you have to irrigate your yard? What does it cost to put up a fence? These are all questions you need to ask yourself.
Going In Informed
Before committing to anything, try to figure out not only what your mortgage payment will be, but what the cost of maintaining the home would be. Though it isn’t an exact or perfect figure, plan to spend about 1% of the home’s value each year on maintenance. That number depends on the size and age of the house, and on how well the previous owners treated it, but it is at least an fair estimate. This is meant to cover both average wear and tear and the occasional minor catastrophe. Be sure to account for any unique features of the home, both good and bad, that may add to the annual cost. If you can’t quite fit the cost of the payment and that 1% per year into your budget, you may want to reconsider investing in a home for the time being.
Checking Your Finances
How much money do you have, and how much do you make? How much can you feasibly save? Do your research and put together a realistic estimate of how much income you have, and how much you are currently committed to paying into things like car payments, student loans, or any other kind of debt. If you can it may be wise to find a loan modification lawyer and consolidate your loans into a more coherent payment plan, because with a new mortgage your finances are about to get significantly more complicated. Collecting all of your debt under one umbrella makes it much easier to really understand what your budget looks like. It can also save money on interest and prevent confusion or miscommunications that can damage your credit.
Making Sense Of It
Once you’ve got both of those figured out it’s time to bring them together to see how much disposable income you really have. Is there enough left over after you add in the cost of the mortgage? Will you make enough to save up a financial cushion to cover the blow of a minor home disaster? Will you be able to save enough to keep your head above water if you lose your job? Consult with an accountant who can really review all of the information you’ve required and talk honestly with you about what your finances will allow. Remember that breaking even is not good enough, you need to actually have money left over at the end of the day to cover all of life’s little unexpected inconveniences like oil changes, broken bones, and fender benders.
There are several useful tools available on ThinkGlink to help to calculate the closing costs, affordability of renting vs buying, and many more. The most important thing is to use every resource available to you to make an informed and cautious decision.
Guest post by Alan Brady who is a writer that uses personal experience as inspiration to write about family, the environment, and business practices.