If you have grown accustomed to renting, but in your heart you want to own your own home, how can you be sure it is in fact a good time for you to buy?
In recent years, the number of home buyers between the ages of 18-34 has plummeted to a 30-year low, thanks at least in part to the Great Recession. Young people in this age bracket are more likely to be super mobile, remain long-time renters, or to live at home with their parents into adulthood than they are to buy a home. Millennials have been conditioned to accept inevitable frequent moves as they pursue stable careers.
However, the most recent findings show an upward shift in the job market, wages, and—you guessed it—home buying. Home ownership rates have climbed in the last couple of years, a climb driven by millennials. It seems that this generation is finally moving out of their parents’ houses and creating homes of their own. Here are five key considerations that serve as a good barometer to establish if you’re ready to buy your first home:
5 Questions to Consider Before You Buy Your First Home
What’s your job situation these days?
In recent years, career instability and unpredictability have been behind the reluctance of many younger folks to purchase homes. Better jobs are requiring more education, so twenty-somethings often find themselves investing in school rather than in homes. And after completing school, millennials know it can take years to find a long-term career that allows them to stay put long enough to invest in home ownership.
So ask yourself how much you like your current job. Does it seem stable and promising? Does it provide the kind of income you’ll need to really launch? Is it in a town or community that you love and can imagine becoming a part of? If you can answer yes to these, then buying a home might be a great move for you.
Is your family dynamic likely to change in the next year or two?
Maybe you are currently single or living alone, but may be getting married in the foreseeable future. Or, perhaps you’re already married to the love of your life, but you are considering expanding your family soon. Factor in these potential changes as you consider if it is time to buy, and what kind of home is the best fit. If your family dynamic might be unpredictable, or even require a big cross-country move, then renting is probably wiser for the short-term. In general, experts suggest that you stay in a home at least three years to make it worthwhile to buy as opposed to renting.
What debts are you carrying?
It is critical that you consider your overall debt situation. Banks and other mortgage lenders have their own rubrics by which they evaluate your debt and your ability to honor a mortgage. In general, the lower your debt-to-income ratio, the happier a lender is to offer you a loan, but just because a lender says you are financially prepared for a mortgage doesn’t mean it is in your best interest. While owning a home is a worthwhile goal, it is not worth compromising your sanity and stress levels. You want to enjoy home ownership, so take a detailed inventory of your monthly debts and expenses and determine what kind of mortgage payment you think you can comfortably afford.
If your current debts are minimal, that’s a plus. But consider possible debts in your near future. Are you about to start paying back a student loan? Are you driving an old beater that needs to be replaced with a new car that you’ll be financing? Are there other debts that you anticipate incurring soon?
Are you prepared for emergencies?
It’s never a good idea to buy a home if you have no reserves in your savings account. In fact, you need a good emergency fund regardless of whether you rent or own, but the stakes are higher if emergencies cause you to become delinquent on your mortgage. Furthermore, if you are a homeowner, you are more likely to stumble into unplanned expenses related to home repairs.
A good rule of thumb is to have three months of pay saved up for unexpected expenses and crises. A little more is advisable if your job is less stable or your family is a one-income household. We hate to be the bearer of bad news, but if your emergency fund is looking pretty puny these days, you might be disappointed to learn that it is not the best time for you to call the realtor. Start socking whatever money you can into a good savings account so that emergency fund is in place. Trust us, you’ll thank us some day!
How much down payment have you saved up?
The more money you can put down towards purchasing a home, the better. If you can put down 20%, then pat yourself on the back—you’re doing great. You’ll qualify for better loan terms, lower interest rates, lower monthly mortgage payments, and you can avoid paying private mortgage insurance.
Putting down 20% can seem hefty for a first-time home buyer. Fortunately, there are plenty of loan products that allow much smaller down payments. There are even special products that get you in your dream house with virtually little to no down payment at all. In some cases, a smaller down payment is wiser, even when you have the funds for a bigger one. If you are buying a fixer upper, for example, you might do well to hold back some of your cash for repairs and improvements.
The important thing is knowing your own situation. Ask yourself, how much have I saved, what can I reasonably contribute to a down payment, and what kind of loan programs are a match for you.
If you would like assistance in evaluating your financial picture, then let a member service specialist at SC Telco meet with you. SC Telco offers a variety of mortgage programs to suit your needs when you are ready to start house hunting. We’ll be here for you every step of the way, helping you know when is the right time to buy, how much house is right for you, and what mortgage loan product best fits your finances. SC Telco is proud to offer superior member service.
If you aren’t quite ready to take on a mortgage today, we can help you make plans and goals that get you closer to your dream home. Our goal is establishing a long-term relationship with our members and helping you build the strongest financial profile for you and your family. We’re at our best when you are at your best. Call us or come in today and let’s find that house of your dreams.