Buying a house is probably the biggest financial decision in our lives. This is precisely why it’s hard to know when you’re ready to do it since there’s no magic alarm that will alert you when the time is right. You can visit a bunch of open houses and crunch the numbers until you go blind, but it still may be difficult to make that final leap.
The thing is that ‘whenʽ is actually not the right question. It is more about ʼwhoʽ. In other words, the foundation of your decision lies in the question of who you are, in terms of your current position in life. Most people think it’s a matter of age which you need to reach before buying a house, but that’s a myth. Some will buy their first home at 21, others will wait until 40 (or later), and there are also those who will choose to rent for life. While the overall housing market is certainly important, the most important indications that you’re ready for the purchase are tied to your personal situation.
The Right Reasons
There’s no person that doesn’t want a home they can call their own, but that isn’t actually the right reason to buy. Taking care of your home with all the extra costs is not a small thing, so you should know exactly why you’ve reached this decision. Okay, you want complete control over your living space, that goes without saying. But owning a house provides you with much more than that. Settling into the right neighborhood allows you to make connections and plant some roots without worrying if your landlord is gonna bring up the rent or sell the property on short notice. Then there’s the process of building equity - although paying mortgage might seem similar to paying rent, every month a little more of property becomes your financial asset. While rent can fluctuate, fixed-rate mortgage costs are more predictable. If some of these reasons are not on your list of essentials, you probably haven’t thought it through yet.
Home Loan Commitment
Although the amount you pay in rent can be similar to the one you’d pay in principle and interest on your home loan, these are not the only costs associated with owning a house. There are also utilities such as garbage, sewer, or water, city assessments, homeowner’s association fees, insurance, property taxes. As a first-time homeowner, it’s easy to forget about these charges, and they can add hundreds of dollars to your monthly payment. That’s why a commitment to a home loan requires serious consideration and some in-depth insights of current interest rates in order to find something you can truly afford. There are many people who have the wrong notion of how much it would cost to own a home since they don’t realize that the mortgage rate is only one piece of the puzzle. Only when you get a full financial picture will you be able to come up with a reasonable amount you can afford and commit to.
Debts & Savings
Before you get approved for a loan, you’ll have to prove to the lenders that you have the discipline and the ability to save. That will be pretty clear from the amount of personal, student, or auto loans you have, as well as from your credit card debt (if there is one). So if you’re forced to use your credit card often, that probably means you’re not ready to buy a house yet. They’ll certainly take a look at your financial picture, especially your credit score which will determine the interest rate they’ll offer you. Just one look at that number and they’ll know whether you’re financially responsible. Savings are also important for the down payment - the bigger you make it, the smaller your mortgage will be. It would be ideal to make it at least 20%. Of course, it’s not mandatory to have that much, but if you do have less than the 20% prescribed, then you’ll probably also need private mortgage insurance.
The Right Neighborhood
Buying a home brings a commitment to live in a certain location for a while. If you haven’t found the neighborhood you love and that suits all your needs, then it’s probably not the right time to buy yet. Homeowners all agree on one thing - the right neighborhood is equally important as the right house and a large part of a homeowner’s satisfaction depends on where that home is. In essence, it is only after you find a place you can truly call home that you’re ready to start looking for a home there.
Settling Down
Even if you’ve found the right neighborhood, you need to be aware that a house is a long term investment. That means that buying a house you’ll have to sell within a year or two is not a good idea - if there’d be any increased value, it probably wouldn’t even be able to cover the closing costs of the purchase. That’s why you should plan to stay at least five years, which means you need to be able to settle down. If you’re regularly changing jobs and still haven’t found that one career you plan on keeping, at least for a while, maybe your next job will bring a two-hour commute. Or it might lead you to a different city or state.
It all comes down to whether or not are you in the situation to make a commitment. In order to make a firm one, you need the right reasons first. And, as you can see, this commitment is not only of a financial nature - while finances certainly play an important role, finding the right location and having clear career goals are not too far behind.
