Buying a home is the largest, most important purchase most people will ever make. Buying a house has great benefits such as a stable place for your family to live. A home provides a secure place where your family can live and grow. You are able to expand and decorate a house as you wish. Along with tax advantages and consistent, stable payments with fixed interest, you gain the best of community – better schools and neighbors focused on the well-being of the neighborhood.
Yet, homeownership also comes with certain responsibilities. Buying your first home takes stamina and commitment, not only to traverse the complicated and time-consuming home search and purchase process, but also to learn how to be a responsible homeowner.
Are you ready to buy a house?
Look at your current situation and determine if:
You have a continuing and reliable source of income prior to applying for a loan. Set up an appointment with a mortgage professional and make sure you’re preapproved.
You are planning to stay in one place for a minimum of five to seven years.
You have a credit history that shows you’re ready for homeownership.
Your total debt is manageable and you can afford to take on the costs associated with homeownership, such as moving expenses and maintenance costs, without depleting an emergency fund.
You have money saved for a down payment and closing costs.
You’re emotionally ready. Successful prospective buyers understand that they might run into some delays and stresses involved before finding a home they love.
Once you take stock of your current situation, it’s important to look at the advantages and disadvantages of buying a home to make the best decision for you and your family.
Homeownership has many advantages – both financial and personal. But buying a home is an important decision. Look at the benefits and the differences between homeownership and renting to better understand if owning a home is right for you.
What are the benefits of owning a home?
- You may earn significant tax savings because you can deduct mortgage interest and property taxes from your federal income tax and many states’ income tax if you itemize your deductions.
A More Stable Monthly Housing Expense
- Your monthly housing loan or mortgage expense can remain the same for the life of your mortgage, depending on the type of loan you choose.
- You may build equity in your home over the life of your loan, which allows you to plan for future goals like your child’s education or your retirement. In the early years of your mortgage, the majority of monthly payments go toward paying the interest. Over time, an increasing amount goes toward reducing the mortgage balance or “principal.” The process of paying off a loan over a set period of time is called “amortization.” As you make payments, you reduce the principal and increase your share or “equity” in your home. If your home appreciates (increases in value over time) equity builds even faster.
Homeowners Have More Freedom
- Homeowners have more freedom in decorating, landscaping, and making structural changes to their homes to better suit their family.
Buying a house is not right for everyone. It may not be the right time in your life or you may not like the commitment associated with owning a home.
Benefits of renting:
- Renters are typically free from maintenance obligations such as repairs or lawn care.
- Renters can move more easily and more quickly than homeowners.
- Higher costs are associated with buying and selling a home.
To get a quick idea of what you can afford to spend, multiply your annual gross income (before taxes) by 3 and add your down payment. Rule of thumb: Your total debt payments should not be more than 35% of your gross income. For example, if your annual household income is $50,000, and you make a down payment of $20,000, you could qualify for a $170,000 home with a monthly payment of $1,050. That home payment assumes a 30-year mortgage at current rates, and includes 1% property tax and 0.4% for homeowners insurance. It does not factor in private mortgage insurance, which you’ll owe if your down payment is less than 20% of the purchase price. This is just a rough estimate – the actual number will vary based on factors such as your debt and credit history. You should reduce the maximum target if you have other savings needs (such as retirement and college) or additional expenses (such as child care, private school tuition, health care, or alimony payments).
Mortgage lenders typically use the housing expense and debt-to-income ratios to more accurately determine how much you can afford to spend on your mortgage.
Housing Expense Ratio
Mortgage lenders recommend that your monthly mortgage payment should be less than or equal to a quarter of your monthly gross income. As an example, if your gross income is $80,000, you have a monthly income of $6,666. In that scenario, mortgage lenders might recommend that your mortgage payment is $1,666 (25%) or less. This percentage can change based on the type of mortgage you choose and sometimes the area in which you’re looking to buy.
You need to factor your other debts into determining an affordable monthly mortgage payment. Mortgage lenders look at whether your total debt is larger than 30-40% of your monthly gross income. Debt is not just credit cards and student loans. It can also include child support, car loans, alimony, and housing expenses.
A mortgage lender, a housing counselor, or consumer credit counselor can help you better understand these guidelines and ratios. Before you talk to a financial professional, you can organize by creating a budget. Remember to include savings for inspections costs, moving, the down payment, closing costs, and other related expenses.
- Ice maker
- Garbage disposal
- Trash compactor
- Range hood
- Sub-flooring (damaged or loose?)
- Walls (cracked or peeling?)
- Ceiling (water damage or cracked?)
- Floors (damaged or soft?)
- Tiles (loose or cracked?)
- Windows (water stains?)
- Bricks (bulging or cracking?)
- Shingles (missing or broken?)
- Siding (rotted or missing?)
- Gutters (damaged or dirty?)
- Concrete in driveway and sidewalks (cracked?)
- Windows and window sills
- Lights (exterior & interior)
- Heating system
- Electrical outlets
- Ceiling fans
- Air conditioning system
- Hot water system
- Door bells
- Garage door
- Doors and door frames
- Vent fan
- Heating fan
- Cabinet doors
- Water seepage