Wondering if it’s your time to claim homeownership? Here, we talk about the responsibilities of owning a home and if you’re ready to be a successful homeowner.
There’s always a time for everything. Have you had enough of renting a home and not having that freedom to live according to how you want? Not being able to personalize the home as per your preferences? Or always having the fear that home value will increase and your rent will go up.
If you have those dreaded feelings, it might be a sign that you’re ready to buy a home. But before you head on to look for properties, the question is can you handle the responsibilities that come with homeownership?
For starters, are you financially strong to handle the expenses after you own the home? Is your employment history convincing enough for your loan to be approved? Those are just some of the questions you need to ask yourself.
Yes, we’ll answer the potential question you’ll have in mind, “why is it important to know if I’m ready for homeownership or not?” The answer, it will help you avoid financial losses after making such a massive investment.
We’ve already talked about the benefits of homeownership. Here, we’ll talk about how you can assess if you’re ready to buy a home.
Let's begin.
One of the initial and massive payments when buying a home on a mortgage is your down payment. That’s something we’ve already talked about in the expenses of homeownership.
The down payment can be anywhere between 2% to 20% of the full property price. To put that in context, if it’s a $300,000 home and you’re accessing the mortgage loan to claim homeownership, you may still have to pay $60,000 upfront. Not such a small amount, right?
Are you ready to buy a house and bear such a heavy amount? And that doesn’t mean you exhaust all of your finances in paying the down payment. Why? Because you’ll have a lot of other finances coming your way after you’ve moved into your new home.
If you think these expenses will put you under financial stress, the answer to whether you’re ready to buy a home might be No.
On the other hand, if you feel as if you have the financial stability to deal with these expenses, hire a real estate agent and start your property search.
Learn More: Calculate Your Monthly Mortgage
We’ve talked about a down payment and if you have the income to bear that expense. One of your major sources of financing is your job. Do you love your current job enough and plan to work in the same place for a long time? If yes, you may be ready to buy a home.
Why? Firstly, it will give you a stable income stream to finance your mortgage loan repayment and other expenses. Secondly, having long job tenure is a positive indicator for loan lenders. You can not only get loan financing but also at favorable conditions.
Being a regular switcher between job roles and companies can be a red flag for loan lenders and home sellers. There will also be doubt in their mind that you may default on your loan as your income stream will stop.
If you have frequent changes in your job history, we recommend you delay your plans for homeownership. Build a solid and consistent working portfolio. Once you’ve achieved it, that’s the time where you can say, “I’m ready to buy a house”
We’ve just mentioned clearing the doubts of loan lenders by having a consistent work history. But that’s not the only way to develop trust with lenders.
What can make your case stronger for having your mortgage approved is a good credit score. If you’re wondering what a credit score is, it reflects on your payment history and how punctually you’ve repaid your debts.
When you make a late payment, it negatively impacts your credit score, reducing your chances of having a home loan approved. Generally, 500 to 600 is considered a decent credit score for more lenders. A good credit score may be different for various lenders.
This means you might not be ready to take up homeownership just yet, but this can change. Here are some ways to up your credit scores.
Sometimes, it’s not whether you’re ready to buy a house. The correct question would be, “Do you really want to buy a house?” When you have homeownership, are you ready to stay there for a substantial period and make your investment count?
Buying a house, only to sell it for profit might not be a good investment decision as the market condition can get unpredictable.
Apart from the financial aspect, constantly switching your house might impact your physical and psychological well-being. Going through the entire buying process, again and again, isn’t easy.
Apart from stability and well-being, there’s another benefit you can enjoy when living in a house for a long. If you live in a home for more than 2 of the five years, you’re eligible for the homeowner tax deduction. Check out this and other tax deductions for homeownership.
Remember when we said not to exhaust all of your savings in paying the down payment as you’ll have other expenses to bear? Home improvement and maintenance are one of those recurring expenses.
These expenses might be for repairs like plumbing, electrician, carpenter, or other emergency expenses.
In addition, some of the home improvements might include renovating your kitchen, repainting the house, or working on making your exterior more elegant.
As a common rule of thumb in the real estate industry, your yearly home maintenance budget should be 2% of your property price.
Here’s another fact you’d want to know. Your entire home maintenance expenses are non-taxable. So, homeownership can save you a lot of money in taxes.
How much is your income, and what is the currently owed debt? In addition to the credit score, the debt-to-income ratio is another major metric lenders look at to approve your loan.
Here’s the formula for a Debt to Income ratio.
All monthly debt/Sum of gross monthly income
If your debt-to-income ratio is high, it might be difficult to have your loan approved and gain homeownership. In that case, we recommend paying off your debt faster and lowering your debt-to-income ratio.
Even if you manage to have the loan approved and buy a house, it’ll be difficult to bear all the expenses that come after you bought a property. You’ll just be investing to be in debt again.
Like with everything, if you don’t follow the process, you’ll likely suffer failure. Before you’re ready to buy a house, you’ll have to understand the recipe for choosing the property, and the buying process.
You can take assistance from experienced real estate agents to ensure you make the right decisions and profitable investments. Or, you can visit our guide that explains the entire buying process to smoothly find, negotiate, and move into your desired property.
Once you understand the property buying process, you’ll be aware of what to expect throughout the property buying period, instead of being caught off guard. With these complicated formalities out of the way, you can focus on what’s more important, finding your desired real estate that meets your preferences and budget.
You can’t just walk into viewing random properties and expect to find the right one. First, you need to know your preferences about what you need in a house.
Some of the factors which you can think about when buying a home can be:
Once you have your list of preferences, it’s time to call up a real estate agent or find an open house event happening around you.
This will save you a lot of time and help invest in the right real estate property.
As you’ve read this far, you’d have received your answer if you’re ready for homeownership or if there are things you need to sort out.
If you’re looking for an experienced real estate to help you during your transition to homeownership, HAR can be the partner you’re looking for. Our certified real estate agents can be your partner to help you move from renting to homeowner status.
Knowing if you're ready for homeownership is crucial to avoid financial losses and make a well-informed decision when making a significant investment in a home. It helps you prepare for the responsibilities and costs associated with owning a home.
Down payments typically range from 2% to 20% of the property's total price. It's essential to budget for this significant upfront cost when considering homeownership.
A good credit score for mortgage approval can vary among lenders, but generally, a score between 500 to 600 is considered decent. A higher credit score improves your chances of getting favorable loan terms.
To lower your debt-to-income ratio, focus on paying off existing debts faster and reducing your overall debt. This can improve your financial health and increase your chances of mortgage approval when buying a home.
A common rule of thumb in the real estate industry suggests that your annual home maintenance budget should be around 2% of your property's purchase price. These expenses are non-taxable and are necessary to keep your home in good condition.
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