1. What Are Your Reasons for Buying a Home?
Make sure that your reasons for buying a home are realistic. Recent data shows that many millennial homeowners regret buying their homes. For example, real estate listing company Clever released a report in April 2019 that revealed that 51% of millennials have regrets about purchasing their homes. Among their biggest regrets are that their monthly mortgage payments are too high, the house requires too much maintenance, and the house has depreciated too much since purchase. Similarly, a February 2019 report from Bankrate showed that 63 percent of the millennial homeowners surveyed had buyer’s remorse. In this case, the top regret cited by those surveyed was unexpected maintenance or hidden costs. Do your research to find out whether your reasoning is sound. If you’re buying a house because you think it’ll be less expensive than renting, for example, then you may want to reconsider your decision, because that isn’t always the case.
2. How Long Will You Be Living in the Area?
The answer to this question may suddenly change due to circumstances in your life. But ideally, you should stay in your first home for at least three to five years before you move again. You usually need to stay that long to break even on the mortgage. If you know you will be transferring to a new area or will want to move to a larger home in a year, then it might be better to wait to buy a home. This delay will allow you to save up a larger down payment and may make it easier for you to afford the home you want.
3. How Much Can You Afford to Pay?
You need to make sure you can afford a home before you decide to buy one. Your entire mortgage payment should be no more than 25% of your gross income. You can stretch this to up to 28% if you have no other debts at all. If you’re taking out two mortgages, you need to combine these payments to find out whether you meet the criteria. Your total monthly debt payments, including the mortgage, should not exceed 33% of your gross income. If you reach beyond what you can afford to pay, you risk the possibility of losing your home, so be realistic about it. If you cannot afford the house you want, you may consider renting a bit longer or looking for something more affordable.
4. Do You Have a Credible Real Estate Agent?
Having a good real estate agent can make a big difference in helping the process of finding and buying a house go smoothly. They need to be willing to get to know your needs and desires, and they must know the local market well. Before hiring a real estate agent to work with, make sure they’re a good fit. Interview the real estate agent, and come prepared with a list of questions to ensure they can meet your needs.
5. How Are You Financing the Loan?
Consider the length of the loan. You can choose a 10, 15, 20, or 30-year mortgage. The longer the term you choose, the lower your monthly payments, but the more you’ll pay in interest over the life of the loan. You may qualify for a government loan from the Federal Housing Authority (FHA) with a lower down payment if this is your first home. These types of loans may also work for those who may have a hard time getting approved by conventional lenders. If you are financing with an ARM (adjustable-rate mortgage), you really should not be buying the home. Your interest rate will go up and increase your payments, and then you may find it difficult to keep up. Your equity may not grow quickly enough to allow you to refinance before your rate changes kick in. Do your research on the types of loans for homebuyers to ensure that you’re going with the financing option that’s best for you.
6. Did the Home Pass Inspection?
Before you buy, make sure the home passes all inspections. This step will keep you from running into any costly surprises once you purchase the house. It’s worth the money to pay for a thorough inspection because it can help you find out if you’ll have to pay for costly repairs. What’s included in a home inspection can vary depending on where you live, so make sure you get clear on that before hiring someone. Even if you’re planning to do renovations on the home, you’ll still need a good inspection to make sure there are no surprises that you have to address down the road. Depending on where you’re buying the home, you may be able to include a home inspection contingency in your purchase contract. With one of these, you may have the option to cancel the sale or negotiate repairs if the house does not pass inspection.
7. Are You Ready for the Responsibility?
Once you’re a homeowner, you’re responsible for many issues that a landlord normally oversees when you’re renting, such as handling repairs when the furnace goes out or the refrigerator dies. To prepare for this, you need to have a fund set up for home repairs, starting with at least $5,000 before you buy. If your budget is too tight with a house payment, you likely aren’t ready and should wait to buy a home. Also make sure that you can afford your home insurance in addition to your house payment, as well as additional costs like buying new furniture or paint. Do not give in to pressure to buy a home before you’re ready. You can evaluate whether you should rent or buy each year until you feel prepared.
