Buying a home is a major financial commitment. According to the U.S. Census Bureau, 63.7% of Americans own their homes. That’s down from 69% in 2004. There’s no magic alarm that alerts you when it’s the right time for you and your family to buy a home. No matter how many times you crunch the numbers or visit open houses, it can be difficult to make the leap. And here’s the thing: being a homeowner might never be for you. Still, there are some indications that you might be ready to buy a home and they have less to do with the overall housing market and more to do with your personal financial situation.
You Have the Savings
Before you buy a home, you’ll have to prove to lenders you have the ability – and discipline – to save. If you can’t pony up a down payment of at least 10% (and ideally 20%) of a home’s worth, you aren’t ready to buy that home. The more you put down at the onset, the smaller your mortgage and the less you’ll have to fork over in interest. If you have less than 20%, be prepared to pay private mortgage insurance as well.
Beyond the property, owning a home comes with additional costs that first-time homebuyers may not think about. It’s important to inquire about and account for closing costs, property taxes and homeowner’s insurance, as well as regular maintenance and repairs. You may have to factor in homeowners association fees as well.
Buying a home allows you to build equity in a valuable asset that can be sold for cash, used to fund other purchases or borrowed against. But don’t forget: all of this spending shouldn’t compromise your regular budgeting, including saving for retirement and keeping a separate emergency fund.