Are you ready to buy a home? Even with all the advantages to today's home buyer after the housing market bust--and maybe precisely because of its lessons--making a home purchase is still one of the largest financial decisions you can make. Mortgage rates are at all-time lows, home prices have dropped, and the federal government is offering you money to buy a home, but it's never a good idea to rush into a large financial decision.
Five Considerations Before You Buy a Home
Here five considerations you should go over to help determine if you're prepared to take on the long-term responsibilities of a mortgage loan and owning a home.
- Your credit score. The best mortgage rates advertised by mortgage lenders are typically available to those with credit scores of 750 and above. If your credit needs work, it may be worthwhile to work with a housing counselor or financial advisor to reduce debt and raise your credit scores before applying for a home loan.
- Cash needed for a down payment and closing. A conventional mortgage loan will require at least 10% and probably 20% of your new home's purchase price as a down payment. You'll also pay closing costs that can vary from 1% to 5% of your home's purchase price. Mortgage calculator tools can help you estimate closing costs, and mortgage quotes should also include estimates of all fees.
- Maintaining emergency savings. Recent economic turmoil has caused many homeowners to lose their homes due to long-term unemployment and forced others to sell homes for far less than what they owed in mortgage loans. Maxing out your financial cushion to complete a new home purchase can quickly lead to financial distress. It's important to establish several months of savings before buying a home, just in case the unexpected should happen.
- Current and future goals. If you're giving up a full-time job to finish college, this may not be the best time to take on a home and mortgage, even if rates and home prices are tempting. On the other hand, if you've established a career and plan to stay where you are, taking advantage of low mortgage rates and other benefits makes sense.
- Employment. There are no guarantees these days, but if you're uneasy about your current employment or are contemplating changing jobs or careers, don't risk taking on a home loan and becoming unemployed soon after.
If, after careful thought about each of these considerations, you're comfortable with all of them, now may be time to buy your first home.