Buying a home can be intimidating, lengthy and riddled with anxiety, but if you take the right steps it can be a smooth-sailing and even pleasant process.
Is the time right? Am I ready for home ownership? What can I afford?
These are just a few of the many questions that might be floating in your mind as you begin what can be the most difficult and overwhelming step in the process toward home ownership - The Decision.
As you begin to consider buying, here are some of the questions you should ask yourself to determine if the time is right for you.
1. Do you budget your finances?
This is one of the biggest financial decisions you will ever make, so approach it like you're making a business decision.
If you're the type that you already have a budget in place, then you're off to a running start. Good money management skills are key to owning a home. When the faucet leaks or the yard needs tending, it's on the homeowner. No longer is there a landlord with an emergency hotline. Not to mention you have to factor in taxes and possibly HOA fees and Mello-Roos. There's no way around it. Owning comes with it expenses.
If you don't have a household budget right now, start one. You need to know where you are financially — where your money is coming from and where it goes every month — to know exactly how much you can afford to spend on a new home.
2. Can you afford the down payment?
Traditionally, to get your foot in the door, you'll need a down payment worth 20 percent of the home price, however if you are a First Time Home Buyer, you can get away with a 3 percent down payment through an FHA loan, all of which can be gifted money.
There are ways to get around that steep 20 percent requirement with zero- or low-down loans, but those options can cost and you might have to pay extra for private mortgage insurance or take out a piggyback loan with a much higher interest rate.
Also, don't forget to consider moving expenses and closing costs, which are typically about 3 percent of the purchase price.
3. Is your income reliable?
Buying a home is a long-term financial commitment, so you'll need consistent cash flow to cover those monthly payments — not to mention the little extra expenses that come with homeownership. If you're in school, plan to go back to school, have a less-than-reliable job or plan to start a family, you need to take a good look at your future cash-flow abilities. Will you be able to make your mortgage payment six months from now? Let's try six years? If you're married and planning on kids, will one of you want to stop working when you have children? If so, make sure you will be able to afford the home on one income.
4. Do you have the resources and time to maintain a home?
Homes require upkeep. You'll have a lawn to mow, windows to wash, furnace filters to replace, and you may need to tend to minor repairs from time to time and possibly even major ones, as well. Make sure you are prepared for all the responsibilities that come with owning.
If after examining your life plan and your financial scenario, you're still ready to start a home search, then go at it. Just make sure you are honest in your answers that way you know the time is right and that you're ready for the next step: Discovering your Price Range.
This blog post is Part One in a series - Steps to Home Ownership.
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