For the last few years, in many areas of the United States, home markets have fallen while interest rates have reached historic lows. Many who are underwater in their homes have been waiting and waiting for the market to rebound while those who are waiting to become home owners continue to wonder where the bottom of the market is and when is the best time to buy.
There are now indications that the market is slowly beginning to improve. If you haven’t jumped into home ownership yet, you may wonder if now is the time to begin your home search and to see how much you qualify for a mortgage loan. However, before you take the leap to homeownership, make sure you are truly prepared. Remember, many people who found themselves in dire financial straits a few years ago were in that position because they bought a home before they were truly prepared.
Can you pay 10 to 20% down? Conventional wisdom used to be to have a down payment of 20%, but that can be difficult in some areas of the country where typical housing prices are $400,000 or more. At the very minimum, you should plan to have at least 10% down. If you can’t, from a conservative viewpoint, you are probably not yet ready to own a home.
Have you practiced making the monthly payment? If you are currently renting and paying $1,000 a month and a house in your price range with your available down payment would cost $1,560 a month, begin setting aside an additional $560 a month for at least 6 months to make sure you can comfortably afford the monthly payment. (Plus, practicing like this can bulk up your savings. Setting aside an additional $560 a month for 6 months will net you an extra $3,360 in your savings.)
Can you afford to set aside money for repairs and maintenance? While many homeowners wish their homes would never need an expensive repair that just isn’t reality. Homes need to be maintained and repaired, and if you don’t put that money aside, you can find yourself in a financial mess. Contact a trusted professional like ACI Exteriors LLC for repairs and home improvements. Experts recommend you set aside 2 to 4% of your home’s value for annual repairs. On a $250,000 home, that means you should set aside $5,000 to $10,000 or approximately $415 to $830 a month in addition to your monthly house payment.
Can you afford annual property tax? Property tax rates can vary widely depending on your location and the value of your home from just a few thousand dollars to $10,000 or more. Before you buy, determine what your property taxes will be and how much you should set aside annually.
Unfortunately, new homebuyers often just focus on one price—the monthly property investment mortgage payment. However, there are many more variables and expenses than just the mortgage. Even though now is still a great time to buy, before you take the leap into home ownership make sure you can afford all of the expenses. And remember too, you will be able to deduct some of your expenses on your income tax filing, essentially lowering your expenditures a bit.