Taking the leap from renting to becoming a first-time homebuyer may seem out of reach. But if you can’t shake the question — how will I know if I’m ready to buy a house? — then you may be getting close. Knowing when to buy a house is a decision that requires much thought and planning. Your answers to these three questions might help you realize you’re more ready than you think.
One of the top homeowner’s advantages is the ability to control their own living space. Whether it’s pets, privacy or overall standard of living, the homeowner makes his or her own decisions.
Home ownership reduces concerns about the ever-looming question of: What’s going to happen next? On average, rental leases last from six months to a year, leaving fate in the hands of the landlord each time a contract is up. Will he need to sell the property? Raise the rent? When you own a home, you take control.
Many think that the monthly cost of owning a home is more than renting. Interestingly, this article lists the 42 states where paying a mortgage is cheaper than renting.
Homeowners reap the rewards of financial gain by paying monthly housing costs that build equity. Equity is the monetary value of your home beyond what you owe on your property. By building equity, the homeowner creates a savings account that can be accessed for future needs.
Many first time buyers falsely believe that they have to put 20% down to buy a house. In reality, 61% of millennials who purchased a home in 2017 put down 10% or less. Depending on the kind of loan, a down payment can be as low as 3.5%. Additionally, there are first-time down payer assistance programs to aid first-time homebuyers without a sizable down payment.
Are you worried that your student debt might hinder your ability to purchase your first home? Your current debt might not be a problem. In 2017, 46% of homebuyers had student loan debt at the time of purchase. According to Ellie Mae’s Origination Report, loans closed over the last year had an average front-end debt-to-income (DTI) of 25% and an average back-end DTI of 39%, which is much higher than many believe is acceptable. Work with your loan originator to work on your DTI ratio to determine what is achievable with your current financial situation.
Our advice for first-time homebuyers is that owning a home is a wise financial decision. Not only will you build wealth without paying capital gains, but Forbes projects that a typical homeowner’s overall net worth is 45 times greater than that of a renter. “That is, a typical homeowner will be ahead of a typical renter by a multiple of 45 on a lifetime financial achievement scale.” As you pay your monthly mortgage on time, you can increase your credit profile, which benefits those with little or no credit background.
When you talk to a lender and get preapproved for an amount you can securely afford, be sure to take into consideration Freddie Mac’s 4 C’s:
Once you are successfully buying a house, you will appreciate that the daunting leap you once imagined was actually the best step you could take toward a very bright future.
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