With mortgage interests rates still reasonably low, it seems like a great opportunity and you might be thinking that this is the right time for you to buy a house.
Of course, I believe that everyone should strive to reach the goal of home ownership.
As you consider this major decision here are a 3 questions to ask yourself to determine if the time to buy a house for you is now.
1. Are you on firm financial ground?
- Are you completely debt free (credit cards, medical bills, student loans, car loans, etc.)?
- Do you have an emergency fund of 3-6 months of expenses (preferably 6 months)?
- Are you saving for retirement (15% of your annual household income) and for college expenses?
2. Can you really afford to purchase a home?
- Could you make the home purchase with a 15 year mortgage at a fixed interest rate?
- Avoid mortgage loans with adjustable interest rates and balloon payments.
- Remember, there is a large difference in interest paid between a 15 year loan and a 30 year loan over the life cycle of the mortgage.
- Have you saved up for a down payment of between 15% and 20%? With a 20% down payment you will avoid paying for Private Mortgage Insurance (PMI) which protects the lender in case of default on the mortgage.
- Will your monthly mortgage payment (taxes and insurance included) be equal or less than 25% (or 1/4) of your monthly take home pay? A mortgage payment that takes too much of your monthly take home pay will put a lot of strain on your budget.
- If you want additional guidance on the process of getting a mortgage, this article from The Simple Dollar is a great resource.
3. What are your purchasing goals?
- Have you made your list of “must have” elements vs. those which are “nice to have”? For example:
- Do you need 4 bedrooms or could you be all right with 3?
- What about bathrooms: is it 2 or 2.5?
- What is more important to you: size or location?
- What about the quality of the school district?
- Make a list and evaluate the potential houses against that list.
- Do you have to buy the first one you see?
- Take your time when looking and guard against “house fever”.
- For my first home purchase in 1996, I looked at around 25 houses.
- For our second home purchase, my wife and I looked at 20 different homes.
- There is no need to rush the decision on this investment which will be one of our largest purchases of your life.
- Who is helping you?
- It is a very big decision so you should seek professional help.
- Secure the services of a good realtor that knows the area and has sold many houses and helped many buyers.
- Interview 2 or 3 before you make the selection.
“Prepare your work outside; get everything ready for yourself in the field, and after that build your house.”
Proverbs 24:27 (ESV)
This post is also available in: Spanish