Buying Your First Home: 5 Things to Keep in Mind
Posted: August 31, 2021 by Inactive Cory Anderson
If you're considering ditching the landlord for a mortgage, here are five things I have learned that you need to know that'll help you figure out if you're ready to buy a home or keep renting.
Your down payment may not be the biggest hurdle. Let's not beat around the bush: Buying a home requires a substantial financial commitment. Having a down payment of 5-7% can make a huge difference. We also need to consider closing costs that are 3% to 6% depending on where you live. If you don’t put down 20% there will be PMI (Private Mortgage Insurance) that can be canceled but only after reaching a certain threshold. It all adds up. A healthy credit history is also important. Most borrowers will start to qualify for a mortgage with a minimum score of 620 -- but the most competitive interest rates will be offered to those with a score of 700 or above. So, if you haven't started practicing those good credit habits yet, it's time to start developing them.
You probably will have to do some compromising. It doesn’t take long to quickly realize in today’s environment getting priced out of the home you have envisioned for yourself is a reality. Know what you want but be willing to bring your vision to what is affordable. Having a not-so-great home in a not-so-great neighborhood doesn’t match your vision, compromise. Maybe a condominium can be the compromise. Replacing the yard and fence.
Be emotionally ready for financial surprises. When it comes to renting, surprises don't require much emotional investment. The rent goes up. You can move. The fridge is on the fritz? The landlord will send someone over. Home ownership is a bit more hands-on. If the toilet breaks, it's time to start watching YouTube videos. And if property taxes unexpectedly rise, it's on you to appeal or pay up. Of course, having the financial flexibility to cover those unexpected things is important, but don't overlook the importance of having the mental and emotional capability of dealing with them responsibly when they arise. Everything could be peachy for months, and then three maintenance issues might spring up in the same week. Stress management and problem-solving skills are home ownership biggies.
A mortgage can be cheaper than rent. Depending on the home you choose and where you live, you may pay a lower mortgage than you paid for rent. But even if you don't, there's still the financial advantage of building equity in your home, instead of lining your landlord's pockets.
Your lifestyle may call for buying instead of renting. You may find a rental can only take you so far. When you're ready to start a family, you're going to want a few extra rooms, and that can get expensive with rising rental rates. A yard also provides a safe place for Junior to play or for a dog to scamper around. The vast majority of renters have trouble finding a place that will allow for their pet. Home ownership can end that