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Home buying is not something that you do lightly. There are many considerations to ensure that you will be making the right choice when it comes to the real estate property that you will buy. This is one of the most expensive purchases that you will do so making a mistake is not really an option.
Some people are so consumed with owning their home that they fail to realize the implications that the long-term mortgage payments will have in their future. If you make the wrong choices, you can have too much debt and end up losing your home in the process. The financial and material loss is one thing. The feeling of failure is another.
There are many tips when buying a house and you are highly encouraged to do a thorough research as to what you need to know about it. You want to be prepared for this because not only do you have to meet certain requirements, there is also the right time to buy a house. If you time it correctly, you can have the house of your dreams without putting your finances in too much risk.
6 signs you should not buy a home just yet
While you may think that you are ready to buy a home, you may want to consider these 6 signs that will tell you that you need to postpone your home buying plans.
You do not have a down payment. The first reason is not having enough down payment. You need at least 20% of the total purchase price. While there may be mortgage loan options that will not require this much, sometimes only 5%, it will entail additional costs. For instance, you will be required to get a PMI or Private Mortgage Insurance. You will be paying for this on top of your monthly amortizations. So better save up for this first before you really proceed to buy a home.
You still have a lot of debt. The second sign is having other debts to your name. If you have student loans, credit card debts and other credit obligations, you may want to keep your debt level low by postponing your home buying plans for the meantime. Pay off your credit cards or personal loans before applying for a mortgage. That way, you will not be committing most of your money on debt payments.
You have a bad credit score. Another sign that you should not buy a home just yet is when your credit score is low. A high credit score will make you a low-risk borrower and that will prompt the lender to give you a low-interest rate on your loan. That will save you a huge amount of interest alone. While raising your credit score is not an overnight thing, it will only take you a couple of months to improve it significantly. Hold your plans for 6 months or so to give you some time to boost your credit rating.
You know nothing about household costs. We are not simply talking about your household budget. We are talking about the various maintenance, upkeep, repairs and renovations that you have to consider when buying a home. You have to be prepared for this because these are all necessary. You have the annual property taxes that you have to pay. There is also the seasonal upkeep costs that you need to spend on. Make sure your income is enough to pay for these on top of your monthly mortgage payments.
You are not sure about the permanence and stability of your current situation. If you are not sure that you will be staying in your job or the area where you are currently staying, it may be best to postpone home buying for now. You need to live in the home you will buy for 10 years or so. If you think that you will be relocating soon or switching careers, then don’t buy a home.
You think there is a looming financial crisis. Lastly, if you feel that there may be a looming financial crisis, don’t buy a home. Even if you already have the 20% down payment or your credit score is in the upper 750 range, do not buy a home. A financial crisis can easily ruin the value of the home that you will buy and that can put you at a serious loss even if you buy it in cash. Hold on to the money for now because you might need it more for your basic expenses when disaster comes around.
Take note that we are not really advising you to not buy a home. You just have to postpone it so you can wait for better conditions that will save you money and keep you from a financial disaster.
Tips when deciding how much you should pay for a home
Aside from these signs, you also have to give careful thought about the amount that you will pay for your mortgage. You need to be careful about this because it takes a very long time to finish paying it off. Fortunately, there are mortgage calculators like those from Bankrate that will help you gauge your financial capabilities.
While that is important, there is also another thing that we wish to discuss. It is a common mistake for people to get a home based on the maximum amount that the mortgage lender will approve based on your current financial situation. Even if you can afford to buy a home that is worth $800,000, that does not mean you should.
There is a smarter way of buying a home that involves investing your money. Instead of just buying a home to live in, why not buy a home that will put money in your pocket? Instead of looking for a home that is worth $800,000, why not buy a home that is worth lower than that and use the remaining to buy a second home for rental purposes? At least, you will be earning money on the other one.
Make sure that home buying is based only on what you need - not what your pride wants your neighbors to think about you. If that is your mentality, then that is another reason why you are not yet ready to buy your own home.