Homeownership is a wild ride. Are you ready for it?
It’s no secret that buying a home is a major commitment. If you’re a first-time home buyer, the process can be stressful—even if everything goes smoothly up until your closing day.
Before you dive into the home-buying process, you should ensure you’re ready to take the first steps toward owning a home. Here are five questions to help you figure out whether you’re prepared to own a home.
1. Are You Prequalified for a Mortgage?
It’s one thing to browse online listings, but it’s another to conduct a home search in earnest. There’s no sense in finding the home of your dreams if you haven’t figured out a way to pay for it yet. Unless you plan to put in an all-cash offer on a home, you’ll have to prequalify for a mortgage.
This important part of the home-buying process determines how much home you can afford based on your income and other personal finance factors. Once you prequalify for a home loan, you can begin to search for properties within that budget. Keep in mind that prequalification is different from a mortgage preapproval, which is when a lender approves a home loan for a specific amount.
2. Do You Have Money Saved for a Down Payment?
A down payment indicates to both sellers and lenders that your finances are in order and you’re prepared to make a serious offer on a home. Although there are loan programs for first-time home buyers that allow for minimal down payments, a higher down payment will create a more attractive offer—especially if there’s fierce competition among potential buyers.
If possible, you should aim to put down 20% of the home’s cost as a down payment, which will eliminate the need for private mortgage insurance (PMI), lowering your monthly mortgage payment. A down payment is a sizable amount of money, so if you need more time to save up for it, you might not yet be ready to own a home.
3. Can You Afford Your Monthly Costs?
One thing to avoid as a homebuyer is spending too much on your down payment and closing costs, making it difficult to cover your bills and other expenses. Much of the path to homeownership is focused on qualifying for a mortgage. While your mortgage payment will likely be a large chunk of your monthly costs, there are several other factors to consider.
You have to include all of your projected monthly costs when you’re determining your budget as a new homeowner. If you are upgrading from a smaller property to a larger one, your monthly bills will likely increase, particularly your heating and cooling bills. Start by adding up your monthly costs, including bills and other loan payments. If you can afford to cover all of your additional costs plus your mortgage payment, then you are in good shape for homeownership.
4. Are You Ready to Settle Down for a While?
Unless you’re on your way to becoming a fix-and-flip investor, you are likely in the market for a home that you’ll live in. If so, it pays to be on a timeline that includes living in that home for several years while you pay off your home loan.
If you plan to move out of the area within the foreseeable future, you may want to consider renting a home, apartment, or condo instead of buying. While your first home doesn’t have to be your “forever home,” you ideally want to live in it long enough for the property values to appreciate so you can earn a profit on your investment.
5. Are You Prepared to Move?
Did you recently sign a new lease on an apartment? Are you thinking about a cross-country move? Perhaps you want to own a home, but circumstances are such that you’ll need to stay put or continue to save money for a down payment. Keep in mind that most mortgages last between 15 and 30 years, so you should ensure you’re ready to move before making that kind of commitment.
There’s nothing wrong with starting a preliminary home search, especially if it requires scoping out a city or town that’s new to you. In fact, it might benefit you to start getting your ducks in a row by researching neighborhoods, job opportunities, and school districts before you start searching for homes.
6. Are You Prepared for the Responsibilities of Owning a Home?
Homeownership can be a rude awakening, especially if you’ve grown accustomed to apartment life, where the property management likely handled much (or all) of the snow removal, yard work, and other maintenance duties. Alas, you must now shoulder the maintenance of your new home, which may include repairs or additions.
One of the determining factors of whether you’re ready to become a homeowner is whether you have a substantial emergency savings fund. It’s important to keep an emergency fund to cover unexpected bills, such as when your washing machine decides it’s done its last load of laundry.
If you don’t feel prepared to pay for or manage emergency repairs, you may want to wait to commit to homeownership. In that case, it will help to become more educated about the home-buying process—everything from applying for a home loan to home maintenance—so that you can feel more confident about your future as a homeowner.