Are You Ready to Buy A Home?

November 03, 2016

With all the speculation about interest rates possibly moving up soon, I’ve been hearing a lot of talk from people about buying a home. You may want to buy, but are you ready? The answer involves a lot more than what interest rates are expected to do. Here are some questions to ask yourself:

How’s your credit? If you’re planning to get a mortgage, one of the first things the mortgage company will do is run a credit check. To get the best rates, you typically need a score of 740 or above. If yours is lower, you’ll pay higher rates or you may not even qualify for a mortgage at all.

One of the quickest ways to improve your credit is to order a copy of each of your 3 credit reports from annualcreditreport.com (free every 12 months) and dispute any errors you may find that could be hurting your score. Another is to pay down credit card or other consumer debt, which also improves your debt/income ratio. If neither of these can improve your score in time, you may just have to build a positive record of on-time payments and wait for your score to rise over time.

Do you have enough savings for a down payment and closing costs? Ideally, you would have enough savings to put down 20% to avoid paying PMI, although mortgages with lower down payment requirements are available. You’ll also likely need another 2-5% of the purchase price for closing costs plus whatever you plan to spend on furniture, renovations, etc. This should be in addition to your emergency fund, which will be even more important with your home on the line.

Can you afford the higher payments? Contact a mortgage broker or loan officer to get a quote and see what your monthly payments would be with different purchase prices. Don’t forget to include estimated costs for insurance, taxes, utilities, and maintenance/repairs. Then see how this would fit into your current spending. It’s important to do this analysis before you even start looking at homes so you don’t fall in love with one and then talk yourself into being able to afford it.

Would buying be cheaper than renting? The rule of thumb is that you need to keep a home at least 3-5 years to make it worth the transaction costs and the risks of the home falling in value. You can do a more precision calculation with this Rent v Buy calculator from the New York Times that factors in everything from how long you plan to keep the home to the tax benefits of home ownership to the opportunity cost of not being able to invest the money you spend on the down payment. If you have a really good deal on rent, or home prices are particularly expensive, or you just don’t plan to stay put for long enough, renting may actually be more financially beneficial.

Are you ready emotionally? The numbers may make sense but they won’t matter if you don’t actually feel comfortable buying. Being a homeowner means freedom from a landlord but it also means being tied down to a home that you’re responsible for. No financial calculation can tell you if you’re ready for that.

 

Want more info on this or other financial topics? If you have a question you’d like answered on this blog, feel free to email me. You can also receive my future posts by following me on Twitter and/or subscribing to my posts on the blog home page.

 

 

Surprising Info About “The Rich”

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I love facts that challenge the conventional wisdom.  That’s why this article from US News & World Report was so enjoyable to read.  The “8 Biggest Myths About The Rich” were all things that I’ve heard people say when making assumptions about people with means.  Here’s my take on some of the myths and what I’ve seen in my career with investors most would call rich. Continue reading “Surprising Info About “The Rich””

Re-landscaping Your Way to Savings

April 23, 2014

My friend Daniel took advantage of a recent promotion sponsored by his local water department that offered homeowners $2 per square foot of grass that was removed and replaced with drought-tolerant plants and groundcover.  The promotion initially caught the attention of his wife who was tired of staring at their perpetually brown, weed-filled lawn.  After some investigation, they realized that the cost of tearing out the “lawn” and replacing it with approved groundcover was going to cost more than the $2 per square foot being offered, but when they factored in the money they would save by not having to pay a gardener ($70 a month) and by not having to use as much water on the lawn, they decided to move ahead. Continue reading “Re-landscaping Your Way to Savings”

Will the Grass Really Be Greener?

May 14, 2013

Spring crept up on me this year, giving the weeds in my lawn time to spread before I was able to spread any weed control. On top of that, when I went to cut the grass for the first time last week, I discovered my lawn tractor had a flat tire that was not easily fixed.  Luck was with me though, because just as I was about to give up on the lawn care that day, I heard the sound of a weedwacker and noticed a shiny 4×4 pickup truck and trailer parked in front of my neighbor’s house. “No problem, I can cut your grass and apply some weedkiller for you today” said the landscaper with a big smile – and a big price tag.  I ended up having to pay him $160 to cut my acreage and attack the weeds. Continue reading “Will the Grass Really Be Greener?”