Are You Ready to Buy Your Dream Home?

Owning a home of your own is the American dream. How do you know if you can afford the home you’ve fallen in love with though? There are many homes that I’ve found that I would love to own, but understanding just how much you need to earn, what the interest rate would be based on your credit, etc. isn’t always an easy thing to calculate on your own. There are many factors that go into considering what you can afford.

My husband and I have rented for the past 25 plus years. While there are pros and cons to renting vs. buying, we are getting up there in age and want a place that is ours that we can leave to our children. We are tired of paying $1,000 plus a month for rent when we could be building equity in our own home instead of equity for our landlord.

Mortgages Are Scary

Just like a newborn child that you suddenly realize you are going to be responsible for for at least the next eighteen to nineteen years, a mortgage can be scary too. That’s a baby you’re going to have to take care of for the next 30 years or more! So how do you know if you’re really ready to become a homeowner?

Owning a home allows your home equity to accrue. You build wealth as home values increase over time – typically. Being a homeowner, you get to make the rules. My boys have always wanted a pitbull but the majority of rental properties don’t allow them. I want to be able to change the paint colors every season if I choose to – with a rental property you can do the same, but you need to put everything back the way it was when you moved in when you vacate the property. With renting, you never pay anything off – it is a constant monthly bill that takes a huge chunk of your salary.

Buying a home is more expensive due to the down payment, and then there are the ongoing costs of owning a home, property taxes, homeowners insurance, maintenance, and repairs that are now our responsibility versus the landlord’s responsibility.

So that leaves a few questions we need to ask ourselves – are we financially prepared and stable to afford to buy a home? Do we have a steady income? Are we planning on staying in this location for the next 30 years? If we don’t buy our own home, can we afford a rise in rent – or are there properties available at a lower price that fit our needs? Do we have an emergency fund of three to six months’ worth of living expenses set aside in the event of unexpected changes – such as a global pandemic?

Don’t Purchase During an Election Year

Believe it or not, presidential races breed uncertainty in the housing market because we humans do not do well with change. It does not matter who the candidate is, election year home buying is usually a nervous, emotional decision rather than a rational decision.

Know Exactly What You Want

Knowing what you want – and need – in a home is vitally important. If you don’t have a clear view of what you want in a home, then you won’t be prepared when a home that ticks off all your wants and needs becomes available.

Saving for your Deposit

I knew you needed a substantial deposit to put down when purchasing a home, but didn’t know exactly how a deposit was calculated. Since our credit isn’t excellent, we’d be looking at a 10 to 20% deposit. That’s a lot of money for people who are renting, but not impossible.

Having a budget helps, working out how much we can set aside every month for the deposit. Like most people, we have some money set aside for car repairs, unexpected expenses that arise, things of that nature.

Get a Rough Estimate of What You Will Need

So while I was traversing the internet I found this website – mortgagecalculators.info – that has a variety of different calculators available to help you get the basic information you need to start.

• Monthly Payment Calculator – See monthly payment estimates for a given price. This basic tool is quick-and-easy to use but does not include PMI or property taxes.
• Minimum Income Requirement – See a house you want to buy? Use this to calculate the minimum income required to afford it.
• Home Loan Limit – Curious about how much home you can afford? Use this free calculator.
• DTI – See your current front-end & back-end debt-to-income ratios.

So as you can see, we currently pay $1400 a month for a 3 bedroom, 1 bath home with an attached garage, large fenced-in yard, and a back patio. With a comparable home of our own (an additional bathroom and detached garage) we would be paying literally half of what we currently pay – which could also be applied to the principal mortgage and not the interest – allowing us to pay off the mortgage much quicker than the estimated 30-year loan.

Boost Your Credit Score

Finally, if you have little to no credit or a low credit score – this is one area you will need to work on quickly and efficiently. Pay off any outstanding debts. Have a decent amount of money set aside for emergencies. Those with a higher credit score get the best interest rates. The worse your credit is, the higher your interest rate.

So to answer our question – are you ready to buy a home – the answer is yes, if you can tick off each of the items above, have a good credit score, and are able to prove your income has been steady and will remain steady for the next several years. It may be scary to dive into at first, but with planning, budgeting, and keeping your homeownership goal foremost in your mind, you too can own a piece of the American dream – your own home.

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