So you’re thinking about buying a home but not sure if it’s the right time?
Here are some signs that it might be a sound financial decision to buy.
1) You’ve had a job for 2+ years.
If you’re looking to get a home loan to purchase a property, then it’s a good idea to talk to a bank first so that you know how much house you can afford. One of the first things that banks look at when determining what your future purchase price will be, is your job.
Usually they’ll want to see that you have two years or more of working experience at the same job or in some cases in the line of work. The one exception to this rule is that if you have a four year degree from a university and you get a job in a field related to your degree, then the bank will consider your education as past work experience.
With that said, showing that you’ve had a job for more than two years, gives the bank confidence that you are likely to continue with that job, or in the same line of work, and therefore are more likely to continue making your mortgage payments.
2) You’ve saved up enough money for a downpayment or to at least cover some closing costs.
Having money in the bank is also a good financial sign that you’re ready or at least getting close to purchasing a property. Most first time home-buyers use an FHA loan, which requires a minimum of 3.5% of the purchase for the down-payment. So if you’re hoping to purchase a property that is $300,000 then your down payment would be 3.5% of $300,000 or $10,500.
When purchasing a property, a good rule of thumb is that you want to have around $5-10K above whatever your downpayment amount will be, so that you can cover any closing costs for the transaction.
Don’t have enough capital yet? Then it might be a good idea to either wait, or to ask someone in your family if they would be willing to gift you funds towards your downpayment or closing costs.
3) You have good credit.
Credit scores play a large role in determining how much house you can afford. Because the interest rate that a bank will quote you is based on your credit scores, the lower your credit is the higher your interest rate and mortgage payment will be. This in turns means that you won’t be able to afford a higher purchase price than if you had had better credit.
When a bank runs your credit report, your credit scores are usually lower than when a consumer credit report is run (e.g. CreditKarma.com, FreeCreditReport.com). This is because a mortgage credit report takes a more in depth look at a borrower’s credit than a consumer report. If you don’t know what your mortgage credit scores are, then it’s a good idea to get a mortgage credit report run by a bank so that you know where you stand.
Credit delinquencies such as derogatory payments, collections, judgements, bankruptcies, short sales, and foreclosures all negatively affect your credit and can potentially disqualify you from getting a home loan.
4) You’ve saved up enough to cover maintenance of the new house.
This one is similar to #2 on this list with regard to saving enough money. However one expensive that a lot of new home owners often overlook is the cost of maintaining their new property.
Once you buy a property you are the landlord.
This means that you are responsible to cover any issues with plumbing, air conditioner/heating systems, appliances, repainting, roof repairs, carpeting, the driveway etc…
With that said a good rule of thumb is to set aside 1% of the original cost of your property every year for maintenance on it. For example, if you purchased a $300,000 property, you should have around $3,000 available to cover any costs for upkeep. That doesn’t necessarily mean that you will be spending $3,000 every year on maintenance (some years it might be less, and some years it might be more), but this is what it will most likely average out to.