Sooner or later, you’re likely going to buy a home. But before doing that, you’ll first have to know if you’re ready to buy a home. So in this article – Want to buy a home? Be sure to ask these questions first – we’ll outline a list of questions that’ll help you determine if you’re ready for real estate.
1. Can I afford to buy a home and what price?
This is the first and most important question you should ask yourself. Many new homeowners overlook the added expenses associated with a new home, including insurance, utilities, taxes, repairs, and sometimes co-op fees. So, what your home owning family and friends likely didn’t tell you, is that starting a budget for these future expenses (separate from the expected mortgage) can give you a better idea how much you can actually afford.
2. How much do I need for a down payment?
In today’s lending, 5% is becoming the lower threshold of what you can put down for a house (we’ve written on article on this here). That said, traditional lenders will require anywhere between 5-20% of the total price of the home. Less than 20% will require you to take out private mortgage insurance (with varying rates), which protects the lender from default. VA loans (which being in the DC-metro area, we see a great amount of) are also available to those serving in the armed forces. Check with our preferred lender Patrick Norman and James Walker for further information regarding loans.
3. Do I have a positive and reliable income?
Some lenders shy away from lending to those claimed to be self-employed or contractors, regardless of cash in hand. Additionally, If you are working for a company who’s foundations are shaky (furlows and layoffs), it may not be wise to invest in a home. Having a steady income stream not only gives you peace of mind, but also allows you to pay down your mortgage in a timely fashion. Be smart. If you at all hesitate hiccups in the foreseeable future, we suggest you re-think buying a home.
4. Is my credit score good?
Credit scores range from 300 – 500, and is known as your FICO score. Many folks with scores below 630-640 have a VERY difficult time getting a loan, most often resulting in a higher down payment and interest rate. If poor credit is stopping you from owning your dream home, take some time to build your credit score – not only will this save you thousands of dollars down the road, but give you more flexibility in burrowing. Note: if you have established banking relationships with local banks or credit unions, they might be more flexible lending to you with a lower score.
5. How long do I want to stay around here? Am I going to have to move?
More often than none, folks uproot their lives for a new position in an entirely new city. If you are a show-stopper and destined for a corporate position way down the road and experiencing tremendous mobility in your career, chances are you’ll lose money on a new home – especially if you haven’t lived in it for more than 5 years. Financial research and indicators show, that folks who living in a house for less than 5 years never reach a breakeven point, leaving them cash poor and having to sell, which is a whole hassle in itself – unless you have the right realtor (us!).
6. Am I prepared for breaking a sweat and DIY projects?
Maintaining a home is key to retaining its’ value. Do you have the tools, skills, and equipment to maintain a home (e.g. lawnmower, power drill, sander, saw horses, etc)? If not, you should consult somebody who has these assets and ask them how much it would cost to perform regular maintenance on the home if you employed skilled labor.