Buying your first home is a part of the American dream. It’s a rite of passage that marks a new stage in your life.
But it’s also a huge purchase, often the largest single investment in your portfolio. How do you know when you’re ready to leave behind the world of rentals to join the homeowners club?
It’s not about a number.
At least, it’s not about your age. Many of our milestones come at specific times in our lives. You lose your first tooth when you’re five or six. You start to drive at sixteen. And you leave your parents’ house soon after.
Buying a home doesn’t follow that pattern, though. It’s more about your state of mind and the state of your finances.
Sure, all your friends might be buying a house or condo, but remember what your mother said about all your friends and jumping off of bridges. Instead of blindly following the crowd, consider the following questions to help decide if you are ready to buy your first (or second or third) home.
Are you saddled with debt?
You don’t have to be debt free to make your first home purchase. If that were the case, we would be a nation of renters. You do want to think about why you have debt in the first place, though.
Do you consistently credit card carry balances from one month to the next because you’re spending more than you make? Or do you reach for the card to make ends meet when you have unexpected expenses?
These are usually indications of a larger problem with your personal finances. If you are a homeowner, you’ll need to be able to handle the unexpected without digging yourself into a hole. Excessive debt can also have a negative effect on your credit.
Do you have a spotty credit record?
Unless you’re paying for your home with cash (congratulations if you are), you’ll be looking for a mortgage to help you start building some equity. That means lenders will need to see you as an attractive borrower.
The easiest way to get a sense of your credit health is to get your credit score. A stellar score (in the 800s) is a great sign that mortgage brokers will want to work with you. A score in the 600s might get them some pause, however. Your credit score alone likely won’t disqualify from getting a mortgage, but it could cost you a lot of money because you’ll have less friendly interest rates.
Can you afford to live where you want?
Good credit isn’t enough to qualify you for a home loan. Lenders will also want to see that you have a stable job where you make enough money to cover your current debts, expenses, and the mortgage.
This is good for them (you’re less of a risk), but it’s also good for you because it prevents you from buying more house than you can afford.
The general rule is that your housing costs should be less than 36% of your income. You can use a mortgage calculator to determine your monthly obligation for a specific property. Then divide that by your monthly salary to see if you fall under the 36% rule.
With high demand for starter homes in South Florida right now, it can be tough to find a deal that makes sense for your budget. If that’s the case, you’re better off waiting; you don’t want to put yourself in financial distress just because you want to own. You can use that waiting time to save a larger down payment, which will bring more options into your price range.
Do you plan on moving soon?
Boca Raton is a dream location for many, and it’s great for families. But if you don’t see yourself living in the same place for at least a few years, it is usually best to rent. Otherwise, you probably won’t recoup your closing costs.
If you move frequently for work, or if you haven’t quite settled on your career, this could be another sign that renting is a better option for you.
Do you enjoy home repair/maintenance?
When you own your home, you no longer have a landlord to fix a leaking pipe or change your HVAC filter for you. These, and other tasks like lawn maintenance, are now your responsibility.
You don’t have to be a handyman to own a home. Much of the work can be done by contractors. But the more sweat equity you can put into minor repairs and maintenance, the more you can add to your home’s value without pouring in more money.
However, don’t forget about condominiums either. If you aren’t a fan of maintenance but you still want to build some equity, you might consider buying a condo.
Buying your first home can seem like a daunting task, especially if you aren’t really certain that you’re ready to make a purchase.
Just remember to be honest with yourself when answering the questions above. You know better than anyone else what you can afford and whether you’re ready for the responsibilities (and joys) of owning your own home.
If you feel like you’re ready to find a home in South Florida, take a look at our Comprehensive Real Estate Buyer’s Guide to get started on the right foot.
New Harbor Realty