Jumping in the homeowner pool? Test the water first.
Low interest rates are putting homeownership within reach for many, but is it meant for you? Before you decide to leave renting behind and jump into the home ownership pool there are a few points to consider:
Can you afford it?
In taking on this mortgage payment, how stretched is your budget? Do you still have room to cover other expenses? Do you have adequate savings to cover ongoing maintenance? If you are stretched too thin, you might find yourself uncomfortably house poor.
What does it mean to you?
What do you picture in your life as a homeowner? Are you buying a home because that’s what you’ve always dreamed of? Is it a goal that you’ve always had?
Or are you doing it because it is the “next logical step” but the thought of all of that upkeep and expense have you a little on edge? Make sure you want to buy a home for the right reasons.
What have you got in the bank?
In many cases you can buy a house with 5 percent down, but you are going to pay hefty mortgage loan insurance premiums. If you can rent a little longer and amass more for your down payment, you will not only save in the long run by taking out less mortgage, but by not shelling out big bucks for that mortgage loan premium (which you pay interest on, by the way).
Oh- and don’t forget about closing costs. Do you have cash in the bank to cover those? Remember things like lawyer fees, seller/buyer property tax adjustment, appraisal fees, home inspection fees and moving costs. Expect to need about one to five percent of your purchase price to cover these.
What’s your five year plan?
Is your job stable? Do you see yourself living in the same place for the next several years? If no to either of these, home ownership may not be a wise choice at the moment. Real estate is a great investment, but it is generally slow-moving. It will most likely take several years before you can properly take equity out.