There are a number of things a person should consider before taking the leap to home ownership. Financial experts and mortgage lenders typically have a laundry list of requirements that help assess financial stability. Yet there are some things they may not know to encourage.
First time homebuyers should actually take stock of a number of things, including their comfort level with debt and also their willingness to make lifestyle sacrifices in order to own a home. Love going out to nice restaurants a few times every week? That may have to change.
As explained in a recent article in Money, purchasing a home presents a mix of often sobering emotions: fright, stress, uncertainty, exhilaration.
Purchasing a home means setting down roots and entering a new phase of your life, plus the added stress of gaining the largest debt most people ever have in their lives.
“Purchasing a home is an investment in the future, the memories you will share with people you love. Such purchases create a foundational element in our lives, but we have to make sure the time is right,” said Regan McGee, founder of Nobul, an advanced digital real estate marketplace.
The list of things to consider is exceptionally long for first time home buyers and some elements can be stress-inducing realities. Those questions will help you realize if you are or are not about to make a sound decision.
Glenn Brunker, president of Ally Home, explained to Money that learning as much as possible about the homebuying process before making a decision will increase your comfort level.
“Knowledge is the best way to avoid unexpected costs that can turn your dream home purchase into a nightmare,” according to the article.
The number one suggestion from Brunker is to analyze if you have a stable income, something that can prove remarkably tricky in a pandemic/post pandemic world. You should feel comfortable that your income is secure for the next few years at minimum and be able to show a history of stable employment to your lender. Typically, lenders like to see at least two years of tax returns or pay stubs as proof of income. They also like to see that the money you will use for a down payment has been deposited in a bank account for a minimum of 60 days. Self employment makes things a bit stickier and getting a mortgage can prove extra challenging. Collect at least two years of bank statements to verify your earnings.
If you are uncomfortable with your source of income or feel any uncertainty, it may not be the right time to put your name on the dotted line.
The next question you should ask is if you see yourself staying in an area for five or more years. Is that area where you want to raise a family or grow old? Pay attention if you like the geography of the area. The median length of home ownership is now at 13 years in the United States and that amount of time has been steadily increasing. You need to like the home itself as well as where it is located.
Brunker suggests determining if home buying makes sense by also considering closing costs which can be between three and four percent of the home price and also how much renting would cost. There is even a rent vs. buy calculator to help guide people.
“There are obviously a number of factors in buying a home and qualifying for a mortgage. This kind of decision demands introspection as well as education,” added Regan McGee.
Debt management, a robust emergency fund and saving the money for a down payment are also things to consider that are discussed in more detail in the Money article.