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Buying your own house is the ultimate American dream for many people. Most of us grow up with the idea that buying a house is always a smart financial choice and you should do it as soon as possible. In addition, you might feed like you’re simply throwing you money down the drain every month when you pay rent, making you want to get a house as soon as possible. If you’re trying to decide whether its is better to buy or rent and when to buy a house, we’re here to help you.
Things to consider when deciding to buy a house
Believe it or not, buying a house is not always a smart choice. Here are some questions to consider:
- Do you have enough savings? You want to have at least 20 percent of the cost of the house in the bank for a downpayment, plus 3 percent for closing costs, plus some extra cash for emergencies, etc. because life doesn’t stop when you buy a house.
- What is your debt to income ratio? If you’re deciding to buy vs. rent, take a look at your debt. If you want to get a great interest rate on your mortgage loan, make sure that your mortgage expenses, including taxes and insurance, are less than 28 percent of your monthly pay before taxes. Your overall loan payments shouldn’t be larger than 36 percent of your pay, so if you have a lot of credit card or college debt, it may be better to wait.
- How likely are you to move? Once you buy a home, you’re pretty much stuck in the area for decades, if not for your entire life. This limits job prospects for most people, so if you think that you might have to move in order to get a better job in the next decade, you might not want to make this investment.
- Is your housing market hot? You don’t want to buy a home when the market is high only to lose money if you want to sell your home in the near future, so do thorough research on this and monitor how home prices in your prospective neighborhood have changed over the years.
Can you handle all the home ownership expenses? When thinking about what it costs to buy a house it’s important to remember that your expenses don’t stop at your mortgage payments. You will be responsible for property taxes, HOA fees, insurance, utilities, repairs, home renovations, etc. once you move in. The best time to buy a house is when you’re financially stable enough to pay your mortgage and comfortably handle all of these expenses.
When is it time to buy a house?
In an ideal world you would want to have 20+% of your down payment in the bank, have no other debt, have a secure job and live in an area with lots of job prospects. Once you’re confident in your financial situation, go to the bank to get pre-approved for a loan. This doesn’t obligate you to anything, but any real estate agent won’t consider your intentions of buying a home serious until you a have a preapproval letter on hand.