Posted on: 14 January 2015
With the housing market making a comeback, more and more people are considering a home purchase. However, in spite of a stable market, buying a home for the first time can be intimidating. Along with the significant financial commitment, a home purchase includes legal obligations, paperwork, and the possibility of large unexpected expenses.
That's why it's so important to know when the switch to homeowner is right for you. In order to determine whether or not you're ready, you should ask yourself a few important questions. Honesty, as you might expect, is critical.
Question #1: Do You Have a Stable Job?
Even if you're currently renting an apartment or home, a mortgage is completely different. The most notable of these differences is the duration. Most renters have a one-year recurring lease agreement. Most first-time buyer home loans are paid back over 30 years. In times of hardship, personal credit or a sublease can often get you to the end of your lease. Not so with a mortgage.
Therefore, having a stable job is absolutely critical. Take a good, hard look at you and any co-signers work situation. If you've been at your job for a few years, you're probably good to go. If, on the other hand, you've just started up with a new company, you might want to wait a little while.
Question #2: Do You Have an Emergency Fund?
In today's lending environment, it's possible to get specialized mortgage packages that don't require much—if any—money down on the property. That's good news for people who can't save tens of thousands of dollars in short order. That said, you're still going to want to have some cash on hand when you take over ownership of a home. This is particularly true if the property is more than a few years old.
Experts suggest that a home will typically cost about 1% of the purchase price in maintenance costs for the year. This is if everything goes according to plan. Plumbing and roof issues can run up a five-figure bill quite quickly. To weather these expenses, you'll want to have a cushion of available cash.
Question #3: What Is Your Current Income Tax Situation?
Your total yearly income determines your effective tax rate. As your income goes up, you enter into different tax brackets with a higher tax rate. Certain programs, such as child care credits and tax-deferred retirement savings plans, can reduce the amount of money you earn that's subject to income tax—thereby lowering your effective tax rate.
Interest on a mortgage is also tax deductible. That means you'll see a significant return at tax time if you're paying on a mortgage during the year. This is particularly true at the beginning of a mortgage agreement, where interest paid is the highest. If you're flirting with a higher tax bracket, a home purchase can help subsidize your tax liability.
Question #4: Do You Want to Own a Home?
The simplest questions are often the most important. Before you take on a major financial investment, you have to ask yourself if it's something that you really want. Often, many people are drawn to a home purchase without honestly answering this important question.
If you aren't invested in home ownership, you're going to have a difficult time. Keeping a home in great shape and protecting your investment is a lot of work. If you're not dedicated to spending a lot of your spare time on these maintenance tasks, you probably won't be happy. If you are, though, owning a home can be extremely rewarding.
After answering these questions, you should have a pretty solid idea about whether or not home ownership is right for you. This allows you to enter into the selection and purchasing process with confidence, knowing that you have a clear understanding of the path that lies ahead. Learn more about your options by talking to local USDA home loans specialists.Share