Roseville, Calif. – If you have been thinking about buying your first home, making the leap from renting to owning comes with benefits. The perks of homeownership are both financial and emotional. Owning your own home is a big responsibility and seems daunting but you might be surprised how achievable it can be.
The timing of the decision to buy a first home is different for each of us. If you are considering moving from renting to owning here are five questions you can ask yourself to determine if you are ready to own a home.
1. Am I financial ready to own a home?
Clearly, it takes a significant financial commitment to buy a home. The minimum down payment is typically 5% of the cost of the home you are buying. In addition you can add another 2 to 3 percent to cover the closing costs associated with buying a house.
Another important factor is you credit history. To qualify for a mortgage you should have as minimum a credit score of 620 but to obtain a competitive interest rate your credit score should be above 700. Credit is a privilege you earn by practicing good credit habits.
For many young buyers a big challenge is their debt-to-income ratio. Mortgage lenders demand borrowers have certain levels of monthly cash flow which means they carefully look at how much you are paying to other lenders, including student debt. How much you pay lenders each month is divided by your gross monthly income and the rule of thumb is this should be below 36 percent. A debt-to-income ratio of up to 40 to 43 percent may be considered acceptable by some lenders. When preparing to apply for a mortgage you want to pay off or down your credit card balances.
2. Am I emotionally prepared to own a home?
Let’s be honest, renting does not require much emotional thought. If the rent goes up, you can move. If something breaks you call the landlord. Owning a home is means you are “all in.” When the kitchen sinks springs a leak, you have to fix it or find someone who can. If your home is part of a Home Owners Association and they increase the dues you have to deal with it. These kinds of situations can strain your mental and emotional capability, especially if you don have financial flexibility. Managing stress and having problem solving skills is important for first time home buyers.
3. Can I compromise when selecting my dream home?
This sounds silly, but more often than not when I am dealing with first time buyers they have a very strong mental picture of the home they want to buy and reality of the market is different. I am working with a client now, who is discovering she is priced out of the homes she had envisioned for herself. She wanted to live in Roseville or Rocklin and have a yard for her kids and dog. After looking for several weeks she is now coming to the realization she can’t afford that house in the community of her choice. We are now considering other nearby communities and condominiums. These are the types of compromises buyers must be prepared to make.
4. Has my lifestyle moved beyond renting?
There are a many people who discover a rental is not right for their current or planned lifestyle. If you are considering starting a family you will find rentals with extra rooms are expensive. Having a yard for the kids and dogs, like my client, may be more important today than it was when the kids were younger. Yes, there are single family homes to rent and should be considered as an option to buying. When making that choice include what you want to do with your home. When renting a house you may be restricted on pets and improvements.
5. Is owning a home the right long term financial decision for me?
In many parts of the country, including the Sacramento area, your monthly payment to own may be lower than the rent you paid. Even if it is not, there are still financial advantages to of owning including tax benefits and creating equity.
Buying your first home is life changing both from an emotional and financial standpoint. It is not an easy decision and getting from renter to homeowner can be confusing and stressful it can be one of the most rewarding choices we can make.
