Purchasing a home can be stressful and exhilarating. It means you are setting roots and planning for the next big chapter of your life. It is a huge step in life and should not be taken without proper planning. Buying a home also means you will be taking on large debt and the financial realities of owning a home can come with uncertainty and stress.
It helps to learn as much as possible about the home buying process before making a decision so that you feel ready and comfortable for the investment you are planning to make. To set yourself up for success, you need to make sure that you are ready to take the leap. Here’s how you will know that you are ready to buy a home.
1. You are clear about the investment goals
You need to remember that there is more than one way to invest in real estate. You must have an investment strategy in mind. You will come across different real estate investment strategies like fix-and-flip, buy-and-hold and wholesaling. It helps to do your research and look for a strategy that works best with your financial goals. Understand the different strategies and how they work before you make a call. In a fix-and-flip strategy, you will purchase a home, renovate it and sell it for a profit while in a buy-and-hold strategy, you will keep the property for the long term and could use it as primary residence. The investment strategy you choose will have an impact on the type of property you are looking to purchase, which is why it helps to be clear on the goals before you start the process.
2. You have enough savings for a downpayment
You will be required to make a downpayment for the purchase while the balance can be your loan. You must save about 30% of the intended purchase price. A lot of banks need 20% down so you must also have some savings left for the repairs or other costs. A lender will look at the amount of liquid assets you own so they can decide whether you will be able to make the mortgage payments. All lenders look for borrowers who have some amount of savings left after each transaction.
3. You have a good credit score
The credit score has a huge impact on the lender’s decision. It helps determine the rate of interest and the other costs you pay on the loan. When you have a higher credit score of around 700, it is considered excellent and will allow you to enjoy a low-interest rate so you save money on the cost of the home. In case you do not know your credit score, you can find it online using different tools. If you notice any mistakes or errors in the credit report, you need to write to the agency at the earliest to get it rectified.
4. You have money for other costs
Besides the sizeable downpayment, you will also have to pay closing costs which will cover the inspections, appraisals, and more. Before you sign on the dotted line, you must understand the terms and conditions of the loan. If you want to buy the home, you need to have enough money for other expenses like repairs, closing costs, taxes, and insurance. You must understand the loan terms properly.
If you are above the age of 60, you can opt for a reverse mortgage and borrow money using the home as security later down the line. This way, your home equity can be used to pay for major costs should you need it. Use the reverse mortgage calculator to get an insight into how it might work for you now or in the future.
5. You have considered the pros and cons
Owning a home is a matter of pride and responsibility but it is not a decision you make in a hurry. You must consider the pros and cons of owning a home before you take the big step. Understand that the home will require repairs and you will have to spend on it after you purchase it. Additionally, you will have a long-term financial liability where timely payment of dues will be crucial. If you fail to do so, it could hurt your credit score. If you are prepared to handle both, pride and responsibility, you are ready to own a home.
Before you make the big purchase, do your research and spend time learning about how the loan works. Compare the terms of interest offered by different lenders and speak to homeowners to get a perspective. Understanding the purchase process will keep you in control of the experience and you will be well-informed. It will help negotiate the right terms of the loan and you will be in a better position to choose the right home for yourself.