When it comes to large financial decisions buying a home typically reigns supreme. How can you know if you are ready to buy a home? I want to dive into 3 questions that you should ask yourself before taking the plunge.
1. Are Your Finances in Order?
This is a dive into the negative side of finances or in other words debt. Take a look at how much debt you have whether it is student debt, car loans, personal loans, credit card debt, etc. There are 2 reasons we do this. The first is to see if there are any “sicknesses” causing debt. If you need to always use your credit card, now probably isn’t the right time to buy a house. The second reason is that mortgage lenders look at your debt to income ratio. Usually, lenders prefer to see a debt/income ratio of less than 36% and no more than 28% going to your mortgage.
2. Can You Really Afford It?
When you first compare rent to mortgage, it seems like a no-brainer to buy a house. While they are similar in price there are many more costs to owning a home that most people don’t realize. On top of principal and interest, there are property taxes, insurance, HOA fees, water/sewer/garbage, and city assessments. To be on the safe side of things I would recommend not making a monthly payment that is more than 25% of your income (that includes all those other costs). Only you know your budget so be wary of stretching yourself too thin.
3. Time to Settle Down?
According to a report by the Bureau of Labor Statistics, released in August 2021, the average person holds 12.4 jobs in their lifetime with half of them being held before age 24, so until you have found a career that you plan on sticking with for a while you may end up buying a home you regret. I would recommend planning on being in that house for at least 5 years. This is because if you sell before then, the amount your house appreciates most likely won’t cover your closing costs.
If you feel good about these points then most likely you are ready to purchase a house. If on the other hand there are some things that made you second guess the decision, that is ok too. If in doubt talk to a financial professional and they can help you decide. Check out my article How I Manage My Money to find out some tips on building a strong financial plan. Buying a house is a huge and exciting milestone in life and by asking yourself these questions you can take that step forward with a little less stress.
If you have any questions or would like an opinion on your situation feel free to reach out.