There are certain questions that are hard to answer, one of which is “How do I know if I am ready to buy a house?” But, like many other questions revolving around dramatic changes in your life, the answer is a lot more nuanced than a simple yes or no. There are many factors, including debt, job security, income, and credit, but also the natural impulse to wait until everything is perfect. It’s natural to question whether you are ready for a home the same way you might about marriage or a family, but like those situations, there is no perfect time. To clarify, this does not mean that you should rush into buying a home, but rather that you should evaluate whether or not your reasons stem from concerns that must be addressed or if they stem from a natural fear of change.
Though you will never feel completely ready, here is a list of a few things that will help you determine whether or not you are ready to buy your first home.
1. Think about your cash flow
One of the more apparent factors to consider would be what you spend on a monthly basis. Consider what you typically spend on groceries, debt payments, and unplanned expenses. How much are you left with at the end of the month? Looking at your current rental payments (if you are renting) is a good place to start. If you can afford all of your expenses, pay rent and utilities, and contribute to your savings regularly, you have a good handle on your finances.
If you are considering buying a home, ensuring you can cover your expenses and having an emergency plan in place are critical. Your mortgage broker will help you work through what you can truly afford, but it is a good idea to think about your current situation and whether or not you have your expenses under control and have savings to use for your downpayment.
2. Think about the upfront costs
There are several upfront costs you need to consider when you are looking to buy a home. Some of these you may have already set aside the funds for such as your downpayment, insurance, registration fees, legal/notary fees, and property taxes. However, you may also need funds for a home appraisal and inspection. If you have strong savings, this will make the process of buying your first home much easier.
Some other costs you will need to plan for are moving expenses, new furniture (you don’t want to live in a bare home, do you?), and the upkeep of your new home. When tallied up, these costs can add up to tens of thousands of dollars. Can you afford these upfront costs, and the monthly expenses while maintaining your financial, physical, and mental health? These points aren’t intended to scare you, it’s important to have a good idea of the bigger picture to make sure you are making the right decision for your financial situation.
3. Think about your employment
Though earlier we stressed the importance of having funds set aside if something goes wrong, income and job security are incredibly important. Does your income allow you to cover your monthly expenses and contribute to your savings? If your income is enough then the next thing to look at is job security.
Are you currently in a probationary period? If so you may want to hold off making any weighty financial decisions for a while. If you have been at one place of work for a long time and are in a relatively stable industry, it may be safe to make such a decision. However, the reality is that anything in between these two extremes will be a bit more difficult to navigate, so you will have to be the judge of that. It’s important to think about your employment, income, and job security when considering buying your first home. It’s also important to speak to an unbiased mortgage broker to help you plan for the future.
4. Think about your creditworthiness
Your credit score determines what type of mortgage you will qualify for. If your score is 680 or higher, you may qualify for better mortgage terms as well as better interest rates. If your credit score is poor, your options may be limited. In cases where there are some issues with your credit report, things such as late or missed payments, you may be required to contribute a larger downpayment or seek the help of a private lender.
If you’re looking for more information on how poor credit can impact your mortgage approval and downpayment, check out our previous blog post on the topic here. To help you navigate your options you should contact your local mortgage broker and they will be happy to help you plan for buying your first home. A mortgage broker can help you make a plan to get your credit score back on track and buy your first home sooner.
5. Think about your mental state
Your mental state, and deciding if you’re ready to buy your first home will be the hardest factor to consider. It is also a factor that many people forget when they are considering buying their first home. Determining whether or not you’re financially ready requires you to assess your situation, and there are grey areas, but it is logical and easier to calculate. Your mental state, or emotional readiness, requires that you dig into the motivations of buying a home.
Unlike financial readiness, there are no real benchmarks or numbers to point to. Buying a home is a huge commitment. You are committing to being responsible for upkeep, payments and you are committing to staying in one area for a period of time. None of these are necessarily bad things, but they do require your commitment and time.
Before applying for a mortgage, looking for homes, and dedicating your savings to your downpayment ask yourself if homeownership is right for you at this time. Answer honestly, if you are ready you should seek out the advice of a mortgage broker to review your financial situation and help you prepare for buying your first home. Don’t worry, if it’s not right for you at this time then it might be right for you later down the road. A mortgage broker can help you plan for the future.
If you are thinking that you are ready to buy your first home and need some help planning for your first mortgage, give me a call at (705) 333-4338 or get in touch with me here!