Are you going to buy a home this year? As exciting as this is, it can be just as scary if you do not know much about the process. You will have to consider many factors and evaluate all of them, and only then can you decide if you should buy a home or stick with renting for now.
So when is buying a home a good idea? When you have the following three things lined up. Without them, you should not indulge in the process.
An Emergency Fund
You have paid off your debts, your credit score is high and you have enough funds for your retirement phase as well. If all this is true in your case, your financial situation is in good condition. But before you buy a home, there is one more thing which you should take care of. Save enough money for emergency situations.
As you proceed forward with buying a house, you may have to incur costs, which you do not expect. For all these expenses, you must have enough funds and these expenses do not include your down payment. We suggest that you should have cash worth your living expenses for around three months.
There is another advantage of having an emergency fund. If your income destabilizes, you will be able to make your mortgage payments without any issues.
Do you plan your finances and do you stick to them? If so, it may be a good idea for you to buy a home. What is your monthly budget? Modify it and incorporate your mortgage payment, maintenance costs, property taxes and other expenses related your new home. Now try following this new budget for a few months. Can you stick to it? If so, go ahead and buy a home.
A steady income
A mortgage loan has a time period between 15 and 30 years. This is really long and whichever source of income you have, it must remain stable throughout the period. If not, you will find it hard in keeping up with your monthly payments.
A high credit score
Your credit score is of utmost importance since that is the only way with which you can impress the lenders and get them to offer you a favorable interest rate. Your score should be above 640, and if it is lower, improve it first before you buy a home.