Are You Ready to Buy a Home?

Looking for a clear, straightforward explanation of home buying and selling? Estately has you covered with its ongoing series of articles demystifying real estate.

How Do You Determine You’re Ready to Buy a Home?

Buying a home is probably the biggest financial decision of your life so before you decide to buy a home you need to ensure you’re emotionally ready and financially prepared  for it.

Are you emotionally ready to buy a home?

Before buying a home somewhere you need to ask yourself if that area/community is a place you want to call home for a minimum of the next five years. If you buy, and then sell in two years, you’re going to spend far more money on closing costs than you will accrue in equity. So ask yourself some questions as to whether you’re really in it for the long haul…

• Are you (or your spouse) likely to be transferred somewhere else? No job is completely stable, but if you’re in a career where transfers are common you may want to stick to renting.
• Do you have a family member who lives far away that you might have to care for? This one’s a little harder to predict.
• Are you prone to dropping everything at a moment to chase some sudden whim? If you long to travel the world, go to grad school, join the military/Peace Corps, run for Congress, or sell everything and join a religious order then you shouldn’t buy a home.
• Can you move out of your current home when you buy a new one? If you’re in month two of a 12 month lease you’ll want to wait a while to start house hunting.

Are you financially ready to buy a home?

As the recent housing crisis showed us, it’s really important to not only buy a home you can afford, but also one you can afford if the economy takes a nosedive. Of course that’s easier said than done, and since nobody, not even FiveThirtyEight’s Nate Silver can predict the future 100%, you need to make sure you’re doing everything you can to buy a home you can actually afford. To do that, ask yourself the following questions…

• Are you already struggling financially? If you’re having trouble paying the rent and your monthly bills there’s no way a new mortgage is a good idea.
• Are you already saddled with debt? Be realistic about adding more debt if you already have medical bills, student loans, auto loans, etc. You’ll need to factor that existing debt in when calculating what kind of home you can afford.
• How’s your credit score? If you have a poor credit score you’re probably going to pay higher interest rates on your home loan. It might be better to wait until you’ve improved your credit before trying to buy a home.
• Do you have money for a downpayment? Do you have a money in savings to put 20% down on a home? If not, do you have a trust fund, a generous benefactor who bestows cash prizes, or an upcoming appearance on Jeopardy? If not, and you’re a first-time home buyer you may qualify for a loan that requires only 3.5-5% down. If you do, you’ll have to buy an additional private mortgage insurance (PMI) as well. If can’t do any of the above, you should probably build up your savings before buying a home.

How much can you afford to spend on a home?

If you’ve found you’re emotionally and financially in a position to buy a home the next step is to determine how much you can afford to spend on a house.

• Find a mortgage calculator online. There are dozens available online. A general rule is you shouldn’t spend more than 25% of your take-home pay on your monthly mortgage payments.
• Factor in the additional costs of homeownership. Make sure your mortgage payments aren’t so high and your savings aren’t so low that you can’t afford closing costs, property taxes, moving expenses, homeowner’s insurance, water/sewer/garbage, utilities, furniture, maintenance, repairs, etc.
• How much can you borrow? Once you determine how much you can afford, next you need to go out and get pre-approved for a loan. Once you know how much you can borrow, you’ll be able to start looking for houses knowing that if you find one you like you won’t have to kill a bunch of time talking to a mortgage lender before making an offer. You might even be approved for more than what you’ve budgeted, but that doesn’t mean you should borrow that much.

Research your local market

Now that you’ve determined you’re ready to buy a home, and that you qualify for a mortgage, it’s time to search for your dream home. Here’s how to kick that process off…

• Check out what’s currently available. Start looking online to see what’s currently on the market. Both Estately.com and the Estately iPhone App are great tools for searching online for what homes are currently on the market. You can search by zip code, school district, drive times, Walk Score, and even draw your own boundaries. You can use keyword search to find homes with certain features, or narrow your search by number of bedrooms/bathrooms, lot size, year built, and more. When you find a house you want to see you can simply click the “Go See This Home” button and an agent will quickly call you to set up a time to see the home.
• Research your local market. Search for informed people or reputable sites that feature analysis and research on the housing market in your local area. Don’t get to into national trends, as they often have little impact on your area.
• Search what homes are selling for. Online search sites like Estately often have sold data as well, so you can search for how much homes have been selling for in your area. It could be dramatically different than what the list prices are.
• Be patient. The path to owning a first home is usually a marathon, not a sprint. Keep a level head and make sure you’re making an informed, grounded decision when you decide which home to buy.

Visit Estately.com to find your dream home.