There are two kinds of decisions in life: major and minor. Deciding to buy a home is a different kind of choice than deciding to eat that last slice of pizza. Yes, the pizza may seem like a life or death situation at the time—but trust me, it’s a minor decision.
Securing a mortgage loan to buy a house, on the other hand, is a major one. In fact, along with making a career change, deciding whether or not you’re going to have a life partner, and whether or not you’re going to be a parent, choosing to become a homeowner is arguably the largest decision you’ll ever make.
This means that it’s absolutely crucial you don’t rush into being a homeowner—that you are, when the time comes, 100% prepared to switch from renting to owning. If you’ve been thinking about it already, here are some questions you should ask yourself before asking, “Am I ready to be a homeowner?”
Why am I buying a house?
Hopefully it’s not because all of your friends are doing it, or because you think you’re at an age when you should be purchasing a house. There is no golden age for buying; some never do.
There are so many great reasons to stop renting and start living in a home you own.
- A good investment – Over time home values tend to continually rise. As you pay down your mortgage loan balance, your home becomes an asset and you will build equity. It’s a win-win!
- Tax advantages – Mortgage interest may be deductible, giving you a beneficial tax break.
- Personal pride – You want the colors of your home and the flowers in your yard to reflect your personality, along with that big dog you’ve wanted forever!
- Neighborhood community – Great neighbors are priceless and taking pride in your neighborhood makes home a special place.
Am I settled—or ready to settle—down?
As I stated at the beginning of this article, buying a home is an enormous decision. It’s not a great idea to buy a home if you’re not ready to settle down. This means that you should love your city; this means that you should love your job—that you can see yourself sticking to your current career path for at least a handful of years. Some people recommend planning on staying for at least five years, but I’d say at the very, very least, you should plan to stay three.
If you end up moving sooner than three, you’re probably going to come out of the home-owning experience having lost money. And yes, you can always rent your home out if you were to move out of the area, but learning how to be a landlord is an entirely new can of worms.
Do I like doing yard work?
Unlike renting, being a homeowner means you have to take good care of your property. This means you’re going to have to mow your lawn, water your grass, rake leaves and shovel the snow off of your driveway. You’ll also have to figure out whether or not you can fix your home’s plumbing, etc.; if not, you’ll have to pay someone else to do so. Quite simply, if you’re not ready to take responsibility or to care for a house you just spent thousands on, then you might reconsider becoming a homeowner.
Get financially prepared for a mortgage loan
Look into these important items to determine if your finances are ready to take on the biggest purchase of your life.
How is my credit score?
First things first: grab a free copy of your credit report and get it reviewed for free by Dane County Credit Union’s staff before you start looking for homes. There a many factors that go into determining your FICO score, how to get your credit report, and how to keep it looking snappy.
Also think about the student and auto loans you may already have. You don’t need to be debt free, and your credit score needn’t be spotless, but you will certainly want to have all of your finances in order.
Do I have enough saved up for the down payment?
Your house’s down payment is one of the largest payments you will ever make, without a doubt. The more you can put down on your home purchase, the lower your total mortgage and most likely your monthly payment will be. Typical downpayment amounts are between 3-20% of the sale price of the home.
Dane County Credit Union offers and participates in a number of down payment assistance programs to help you come up with this chunk of change.
Do I have enough saved up for all of the other purchase costs?
That’s right! In addition to that enormous down payment, you’ll also need to have enough money to cover closing costs, property taxes, home insurance, and necessary repairs—as well as potentially buy furniture. These costs will most likely add a couple thousand dollars to your payment.
Can I afford to pay principal and interest on my loan, as well as the other monthly fees?
Depending where you buy, the amount that you pay in principal and interest on a mortgage probably isn’t much more than the amount you pay in rent each month. But there are a number of additional costs that come with owning a home and will add hundreds to your monthly payment.
- Property taxes
- home insurance
- Gas and electric
- Homeowner association fees
It’s also recommended that, in addition to the amount you’ve saved up for a down payment and purchase costs, you have enough saved up to pay a few months’ worth of payments as well, just in case.
If you know why you’re buying a house, if your credit score looks great then you’re probably ready to make the jump from renter to homeowner. As always, Dane County Credit Union is here to help you with any mortgage loan needs during this at-times overwhelming process. Contact us for a free consultation, and our mortgage team will sit down with you and look at your individual situation, offer guidance, answer questions, and show you what mortgage options are available.