Are You Financially Ready to Buy Your First Home?

To buy your first home is a major milestone in life. In American society, it?s often seen as a sign of ?making it? ? a sign that you?re an adult with a stable financial situation, on the way to filling that home with a family.

That?s not to mention the fact that a home is also seen as an effective way to start building personal wealth.

The problem is that home ownership is seen as so critical to ‘adulting’? that many people jump into it without truly being financially ready. And that can be disastrous when you suddenly find yourself with a burst pipe that leads to a $1,000 plumbing bill which nobody but you is responsible for.

So how do you know if you’re really financially ready to become a first-time homebuyer? Here are three questions to ask yourself before you start browsing those real estate sites.

1. Are you carrying high-interest debt? You May Not be Ready to Buy Your First Home

Still paying off those credit cards? If you’ve got any high-interest debt, any debt with an interest rate over 8 percent, according to The Balance you’re much better off paying that down to zero than trying to save for a down payment.

Taking on what will likely be the largest single amount of debt you incur – a mortgage – while you’re still paying off other loans is a recipe for stretching your money way too thin.

If you’ve heard of the concept of a ‘house owning you’? This is how it happens. If you’re having to stretch your income among multiple major debt payments, you can easily find yourself in a situation where you can?t afford to change jobs, have a baby, or even move to a smaller home and reduce your expenses.

2. Do you have three to six months of living expenses saved in an emergency fund?

Dave Ramsey recommends always having three to six months’ worth of living expenses saved in an account that you don’t touch unless there’s a real emergency. Think losing your job or totaling your car, not wanting to go on a once-in-a-lifetime vacation.

If you?re a middle-income earner who makes $75,000 a year, that number could be anywhere from $18-36,000, depending on how many months you want to have saved for.

If you don?t have this emergency fund saved, you really shouldn’t be putting your money toward a down payment on a house. Consider what would happen if you got the house, then lost your job and had no savings. All of a sudden, you’ve lost your first home, too.

3. Can you afford to save for repairs and maintenance costs every month, in addition to paying your mortgage?

One expense that many people forget to consider when they’re in the market for their first home is repairs and maintenance. A good rule of thumb is to save 1 percent of your home’s value for repairs and maintenance each year. So if your home is worth $250,000, that would mean building a savings of $2,500 every year, or about $208 per month.

Can you afford that much, on top of your mortgage? If not, you may end up with a costly repair that comes seemingly out of nowhere – and that could cause serious financial hardship for you and your family. As HomeLight reports, small maintenance issues turn into major, costly repairs if left untended. You need to have a financial cushion at all times so you can take care of those issues as they arise.

4. Are you credit-worthy enough to get a good mortgage rate? You May Not be Ready to Buy Your First Home

You know how important your credit is to getting a good rate on a car loan, a credit card, or any other line of credit. Well, the same is true – only more so – with a mortgage.

If your credit isn’t excellent, you can end up with a mortgage interest rate several percentage points above the average, which can snowball into serious amounts of interest over even just six or eight months.

In order to get the best mortgage rate, you may need to work on your credit for a year or so. Rebuild your credit in responsible ways, like taking out a low-interest credit card and paying the balance each month, before applying for a mortgage.

Once your credit is in solid shape, you’ll be in a much better position to shop around for the best mortgage rates, which you can do both through online research and through talking to different mortgage brokers.

To buy your first home is a major decision. You shouldn’t take on a mortgage just because you want to, or you feel like it’s the logical next step. Instead, be patient, save money, and once you’ve built a solid financial foundation, you’ll be able to afford the home you’ve always dreamed of.

4 Responses to Are You Financially Ready to Buy Your First Home?

  1. I never bought in to the idea of home ownership. I couldnt see how paying for the place 2 1/2 or 3 times with the interest and the fees and insurance. If you have the dicipline to put most of that money in savings, seems to me you come out as well or better.

    Plus, its great to just call the lanlord when the water heater goes out or the roof leaks!

    I guess I was just never emotionallly ready to buy a house.

  2. I’m pretty much with you Ric. Houses are sold primarily as investments these days, and the standard advice is everyone should own one. But when the extra repair and maintenance costs come in – and the will – it won’s seem like such an investment. And not everyone should or needs to own one.

  3. You’ve been very fortunate to have never lived in some of the apartments or neighborhoods I have. You are right, home ownership isn’t for everyone and you make some good points here. Another I would add, as perhaps a corollary to expenses related to repairs and maintenance (or maybe you are lumping this all together) is make a house “livable.” What I mean is basic furnishings, i.e. furniture, kitchen, bedroom and bathroom. May not cost as much as the others but still is often overlooked.

  4. Hi Suzie – I’ve heard of some horror stories on landlords, but I’ve also seen plenty of situations where someone buys a house and discovers a major problem a few weeks or months after the closing. Even with a home inspection, serious problems can be hiding behind the drywall that an inspector or appraiser can’t see.

    But you make an excellent point about making a house livable. No one just moves into a house with what they have and as the house is. They inevitably buy new furniture, and start replacing components. And statistically, the average homebuyer buys a new car within 9 months of buying the house. I have talked about this topic in other real estate articles, particularly as it relates to lifestyle inflation. And the bigger/costlier the house, the more expenses the furniture and improvements are.

    It’s another of those “soft expenses” that raise the cost of homeownership well above just the monthly house payment that the real estate industry likes to keep buyers focused on.

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