The facts are in: In 2006 rents rose 4.1% nationwide
In 2007, interest rates began an upward creep and home appreciation is slowing. This gives landlords the upper hand and they are raising rents all over the United States! In 2007, the real estate market changed from a seller's market to a buyer's market. For these reasons if you are a renter who is tired of high rents, then now may be a good time to take a serious look at homeownership.
Ideally, buying your first home should be a decision that you make regardless of what the market is doing. Do not jump into homeownership just because sellers are offering incentives and the interest rates are still fairly low. No one in real estate can know for a certainty what will happen in the next few months or the next year. Approach the problem as if it were an important business decision. Never buy on emotion or because all your college friends are buying homes and you feel left out. Wait until it makes sense for your finances. Before you decide to buy there are several things you must take car of ahead of time.
Create a budget and stick to it for at least a year.
Owning your new home comes with a lot of expenses you do not have when renting. Money management skills are a must. Before you decide to buy, check out the home prices in the area you want to move and calculate the average prices of homes in that area. Most real estate sites have a payment calculator can provide this information. Once you estimate your mortgage payment then add in utility payments, homeowner's insurance, property taxes, and higher commuting costs if you are going to be farther away from your job. If you cannot afford the increased expenses, it is definitely not a good time to buy.
A reliable source of income is necessary
Buying a home is a long-term financial commitment. A consistent cash flow to cover your monthly expenses is a must. If you are now in school, plan to return to school, have a small child, or plan to have children, you will need to look at your future earning potential. For example, if a couple can afford a house when both are working and a baby comes along and one has to quit their job, they are in trouble.
Have emergency cash held in reserve
Putting sufficient cash away in a savings account is something many people neglect. It is wise to have 3-6 months of cash in reserve in case of a lay-off, a serious illness or a natural disaster. With a reserve of cash, the pressure will be off until you can return to work. A cash reserve will ensure that you will not lose the home you worked so hard to get.
Your credit report must be in good condition
While you don't have to have perfect credit to buy a home, the higher your credit rating, the lower your interest rate will be and the lower your mortgage payments. It is a good idea to work on cleaning up your credit before you buy. For at least two years before you buy, do not make the mistake of missing payments or have any other black marks on your report. You want to look good for lenders. Even if you have older negative aspects, if you show good tendencies for two years prior to buying, you are likely to get a loan with a lower interest rate.
You must have your debt under control
If you have any outstanding debts, it is a really good idea to get them paid off before decided to buy. Lenders look at your debt-to-income ratio to determine if you qualify for a loan. Your total payments, including your new mortgage payment, should not equal more than 38% of your total gross income.
Buying a home is a long term commitment
Are you ready to stay in one place for 3-5 years? Typically, that is how long you will have to keep the home to recoup your buying and selling costs. Selling before then means you will likely loose money. Keep in mind, if you have lived in your new home for less than two years and you make a profit when you sell it, you will have to pay capital gains tax.
The folks at Nancy Chandler Associates, REALTORS, Licensed in Norfolk, Virginia, can help you with every step of your home buying process, including helping you determine if it really is the right time for you to buy.
