The American dream… a white picket fence, two car garage, master bathroom, and plenty of room to grow. Well, for some, anyway. If part of your dream is to own a home, it’s important to understand and consider the details of what homeownership entails.
There are several areas financially one should evaluate, starting with income. Consider the stability of your job/career and gross income before taxes. Then look at the details surrounding:
- Debt-to-Income ratio. In short, this is your gross monthly income divided by the amount of minimum monthly payments in debt.
- Level of mortgage you can afford. Knowing this will determine price range for the home you are looking to purchase.
- Your savings for a down-payment, depending on the loan you can obtain, may be 3% to 20% of the negotiated price of the home.
- Emergency savings. When going into homeownership it’s good practice to have at least three months’ worth of savings if you should lose your job, or if something critical occurs (hospitalization, or replacing a hot water heater).
- Costs related to moving. Whether you move from your current home to your new home, some funds will be needed for packing supplies, a rental vehicle or paying a service for moving your belongings.
Whether you’re single, married, with or without children, lifestyles can change profoundly in a short amount of time relative to a 30-year mortgage. Consider the following when determining homeownership readiness:
- Are there any obvious or imminent needs for space considerations?
Is a baby on the way or have the kids grown and you’re ready for downsizing? These will require different types of space, so before touring that 6-bedroom mini-mansion, be sure to understand your current and near-future home size needs.
- Does anyone in the household have expensive hobbies, or work from home?
Depending on the mortgage, hobbies may have to be put on the back burner, and if working from home there will need to be ample space to dedicate for work.
- Can you foresee the need to move within five years because of your career path?
Most advisors will suggest living in a home for at least five years before selling. If you know you are pursuing a career where opportunities are available only if you move, it is something to seriously consider before taking on homeownership.
Homeowner Costs Often Overlooked
A final area to consider are the costs many homeowners may overlook because of the excitement of getting ‘the’ home of their dreams. Some of the easiest items to miss include the need to cover costs of landscaping upkeep, buying appliances that don’t come with the home, and utility bills that may have previously been included in rent (and the initial fees to obtain service).
Are You Ready?
Whether or not you answered yes or no to the considerations outlined above, the bottom line is about what you can afford realistically. If you cannot afford the price-point of homes you’re dreaming of, alternatives such as rooms being used for dual purposes may get you to a home you love. Take time to consider potential hidden costs, but don’t hold yourself back from moving forward to homeownership.
Need assistance deciding what you can afford? Contact us today! We’re happy to discuss your mortgage options with realistic expectations.