Are You Ready to Buy Your First Home?

Whether you're a 20-something-year-old getting into the housing market early or a long-time renter looking to finally make the big leap to ownership, buying your first home is one of life's major milestones. In both a personal and financial sense, purchasing a home represents one of the most impactful decisions that a person has to make. Because of its magnitude, the choice to leap into real estate should never be made lightly! Here are 4 key questions that first time buyers should ask themselves before taking the plunge.

1. Are my finances strong enough to buy?

This is the most obvious question that anyone needs to answer before buying a home (hence it being #1). Most first-time buyers are primarily concerned with the up-front costs, the largest of which are the down payment and closing costs. Each of these can vary widely depending on your circumstances, location, and purchase agreement, so be sure to budget accordingly. Remember, putting down the traditional 20% will give you a smaller monthly payment, but it isn't a necessity.

Your credit score is another factor to consider before making the decision to buy a home. Although people often buy homes with a score in the mid-600s, you will only receive the best (AKA lowest) interest rates if your score is over 700.

Less obvious financial hurdles to home ownership include recurring expenses such as property taxes, repairs, and utilities. In order to make these monthly payments easier, it's a good idea to try to lower your debt-to-income ratio ahead of time by paying off any credit card debt.

2. Am I willing to compromise?

People often go into the home search process with a very specific idea of their dream home, only to realize that no such home exists in their area (at least, none that they can afford). As a result, compromising on these expectations is almost always necessary in order to find a home. If you aren't willing to settle on a smaller home, a worse location, or some other form of compromise, then you may want to put the home search on hold until your desires change or you increase your budget.

3. Am I ready for the stress?

When renting, it's easy to overlook the amount of repairs, maintenance, and general stress that your landlord has to deal with. Once you become the property owner, all those responsibilities now rest squarely on your shoulders. Yes, this is most obvious in the form of additional costs, but it also includes a great deal of time and stress. If you don't handle stress well or hate maintenance, owning a home may not be the lifestyle for you.

4. Will owning a home pay off?

When buying your first home, you should always think of it as an investment. Unlike renting, owning a home allows you to build equity in your residence. Ideally, that equity means that you will actually pay less in the long run than you would have by renting during that time. The amount of time that it takes to break even on expenses depends on several variables, such as your interest rate, your home's appreciation, and how much your rent costs. To make deciding easier, take advantage of an online calculator comparing renting and buying costs.

Owning a home is an incredibly rewarding experience with many advantages, but that doesn't mean you should leap into it before you're ready! You can learn more about these questions at houselogic.com.