|Many renters are starting to think
about purchasing a home of their own. Several factors should
be considered when purchasing a home:
How long you plan to live in the home.
If you purchase a home and get a job transfer or decide
to move after only a short time, you may end up paying
in order to sell it. The value of your home may not have
appreciated enough to cover the costs that you paid to
buy the home and the costs that it would take you to
sell your home.
The length of time that it will take to cover those costs
depends on various economic factors in the area of the home.
Most parts of the country have an average of 5% appreciation
per year. In this case, you should plan to stay in your home
at least 3-4 years to cover buying and selling costs. If
the area you buy your home in experiences an economic up
turn, the length of the time to cover these costs could be
shortened, and the opposite is also true.
How long the home will meet your needs.
What features do you require in a home to satisfy your
lifestyle now? Five years from now? Depending on how
long you plan
to stay in your home, you'll need to ensure that the
home has the amenities that you'll need. For example,
dwelling may be perfect for a young couple with no children.
However, if they start a family, they could quickly outgrow
the space. Therefore, they should consider a home with
room to grow. Could the basement be turned into a den
and extra bedrooms? Could the attic be turned into a
suite? Having an idea of what you'll need will help you
find a home that will satisfy you for years to come.
Your financial health - your credit and home affordability.
Is now the right time financially for you to buy a home?
Would you rate your financial picture as healthy? Is
your credit good? While you can always find a lender
you money, solid lenders are more skeptical if your credit
history is not good. Generally, a couple of blemishes
on a credit report will make you a good credit risk and
qualify you for the lowest interest rates. If you have
more than a couple of blemishes on your report, lenders
like Quicken Loans may still provide you with a loan,
but you may just have to pay a higher interest rate and
Some say that you should refrain from borrowing as much
as you qualify for because it is wiser not to stretch your
financial boundaries. The other school of thought says you
should stretch to buy as much home as you can afford, because
with regular pay raises and increased earning potential,
the big payment today will seem like less of a payment tomorrow.
This is a decision only you can make. Are you in a position
where you expect to make more money soon? Would you rather
be conservative and fairly certain that you can make your
payment without stretching financially? Make sure that whatever
you do, it's within your comfort zone.
To determine how much home you can afford, talk to a lender
or go online and use a "home affordability" calculator.
Good calculators will give you a range of what you may qualify
for. Then call a lender. While some may say that the "28/36" rule
applies, in today's home mortgage market, lenders are making
loans customized to a particular person's situation. The "28/36" rule
means that your monthly housing costs can't exceed 28 percent
of your income and your total debt load can't exceed 36 percent
of your total monthly income. Depending on your assets, credit
history, job potential and other factors, lenders can push
the ratios up to 40-60% or higher. While we're not advocating
you purchase a home utilizing the higher ratios, its important
for you to know your options.
Where the money for the transaction will come from.
Typically homebuyers will need some money for a down payment
and closing costs. However, with today's broad range
of loan options, having a lot of money saved for a down
is not always necessary - if you can prove that you are
a good financial risk to a lender. If your credit isn't
stellar but you have managed to save 10-20% for a down
payment, you will still appear to be a very good financial
risk to a lender.
The ongoing costs of home ownership.
Maintenance, improvements, taxes and insurance are all
costs that are added to a monthly house payment. If you
condominium, townhouse or in certain communities, a monthly
homeowner's association fee might be required. If these
additional costs are a concern, you can make choices
to lower or avoid these fees. Be sure to make your realtor
and your lender aware of your desire to limit these costs.
If you are still unsure if you should buy a home after making
these considerations, I can help you get in touch with
an accountant or financial planner to help you assess how
fits into your overall financial goals. As a buyers consultant
it is my pleasure to assist first-time home buyers.