Deciding if You’re Prepared for Commitment of Buying a Home
Buying a house is a big commitment, it is the largest purchase that many will make in their life, so before you start house hunting and shopping for the best rates, you should take the time to look at your current situation and understand how it may change in the future.
Some questions to ask yourself:
- Are there any planned life changes in the next few years, like having kids or changes in your job, that could influence your financial situation?
- Can you commit to staying in your home for the next five years?
- Is your income stable?
- Can you handle, or take the time to learn, house repairs? If not, are you willing to pay someone if something breaks?
Both buying and renting a home have their benefits, so you should consider what matters to you.
Take a Look at Your Financial Situation Before Buying a House
You should start by reviewing your bank statements to determine how much income comes in and what expenses are actually going out each month. Often there are small expenses that do not get factored but when you have a few of them, they can add up to being substantial. If you are going to be buying a house with someone else, you should also factor in their income and expenses. Then ask yourself these questions:
- Do you have stable income?
- Are you able to put money away for savings each month?
- Is there a plan for managing your current debt?
- Do you pay off your credits quickly, or do you make the minimum payments each month? (Low credit card balances increase your FICO score and allow you to enjoy better rates)
- Do you have money saved for an emergency?
- Do you have money saved for a down payment and closing costs associated with buying a house?
Determining Your Down Payment
How much you will need for a down payment is dependent on the type of loan and the sales price of the house. The more that you put down, the lower that your monthly payment will be. Conventional loans typically require at least 5% down, while FHA loans typically require 3.5%.
While considering how much to put as a down payment, it is important to consider that you will also have to pay closing costs that range from 2% to 5% of the home’s value.
You can use our mortgage calculator to help determine how much to put as a down payment to get the mortgage payment where you would like.