04/04/14 by Rennie Detore
Often done out of necessity or because you're just tired of spending money on rent alone, you've tossed your hat into the housing market ring and are intent on buying a home.
Before you begin house hunting, however, you must truthfully determine if owning a home is something that you're actually prepared for, above and beyond the monthly mortgage payment.
Far too often, buying a home is idolized as being the "American dream," and those who continually rent are cast aside as foolish for essentially throwing their money away (i.e. paying for something every month that isn't yours and you don't own).
That certainly stands as valid reasoning but still doesn't mean that you're necessarily ready to own a home, and everything that goes with it. Beyond owning a home, building credit and actually having that sense of purpose every time you pay your mortgage, knowing that you're paying toward something that is basically yours, there's much more to a home.
What about additional utilities that were already included in your rent?
Do you have money saved for emergencies?
How does your job and its security play into your next move?
All of these pertinent questions must be considered contently before you sign that sales agreement on the dotted line and begin your forage into being one of many homeowners that bites off far too much they can't chew.
Think you're ready to buy a house; think again.
1. You're barely making it as a renter: If you're paying $500 in rent and, with the lower home buying interest rates in your sights, you can match that same dollar figure when buying a home, you decide its basically a laterally move financially only now you "own" your home. That simplistic thinking isn't going to take into consideration anything with the new home that pops up that isn't covered under home owners insurance or part of a home warranty upon buying. Most home warranties cover minor repairs but nothing that would classify as major, like the roof leaking. And the majority of repair money comes out of your pocket, meaning that $500 rent vs. $500 mortgage isn't exactly the even playing field you thought it was initially.
2. Additional home related expenses: If you're renting and your gas and electric are included in your monthly payment, have you thought about what it's going to cost you with a new home? You have to add, on average, another $200 per month to your outgoing expenses after you stop renting and start paying a mortgage. You also have to consider homeowners insurance, if it isn't included in your mortgage payment, along with a home warranty monthly charge and perhaps even cable TV and internet, provided that was paid by your old landlord as a package deal with your rent.
3. Your not sure your job is stable: This one speaks for itself. Let's say you have enough money to buy a home as far as the down payment and earn enough to take care of the monthly expenses. That's all well and good, but what happens if in a few weeks, months or years, your job no longer exists. That might not be realistic, but if you happen to be employed by a company that isn't doing so well or there have been talk of layoffs, buying a home shouldn't be a high priority. It's much easier to bargain, beg and plead with a landlord or break a month to month lease than haggling with mortgage companies about not being able to pay for your home.
4. Your credit score and report need work: A common mistake among would be house hunters and eventual home owners is the confusion with credit and how it can hinder your chances of being approved for a home loan. Banks and loan underwriters pay close attention to your debt to income ratio, and if your credit cards or debt in general are in a state of disarray, you might want to get that cleaned up first and foremost before you even consider approaching a financial institution or realtor to buy a home. This includes paying down credit card balances that are incredibly close to the credit limit and not opening new lines of credit at least a six months to a year before you decide to buy. A huge misstep for home owners is, once they find a home, sign the papers and await word on final approval, they begin charging thousands of dollars worth of furniture to department store credit cards or decide, in the midst of the underwriter determining their home owning fate, opt to buy a new car simultaneously. Those moves are enormous red flags for mortgage companies and could easily affect your debt to income ratio moments before the loan is signed off on, thus causing you to not be approved.
All of this isn't to suggest that buying a home is a bad idea. But if you're really not ready for it, then that's exactly what the endeavor becomes. Sometimes, in the case of being a home owner, patience trumps impulse and waiting until you have more money saved, a better job or financial stability seems like the logical move at the moment.
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