If you’ve been renting for a while, how do you know when the time is right to buy a house? The desire is there, but are you ready to purchase a home? Many potential homeowners are asking these questions while evaluating their finances. Buying a home is one of the largest purchases people make. It’s understandable that many aren’t sure when to finally commit.
Fortunately, there are a few key factors to consider when deciding if you are ready to buy a home. Below is a helpful guide detailing what to consider when weighing your options between renting and home ownership. Read on and discover if you are ready to make the switch with a northeast Wisconsin home loan.
Your Rent Continues to Rise
Renting provides flexibility to move when you want. It also removes the responsibility of covering the costs of repairs and maintenance. However, the freedom of renting may be outweighed by increasing rent prices. The national rent trends show that the cost is currently increasing exponentially, rather than steadily. With this trend, many can no longer afford monthly rent.If your rent is becoming more difficult to manage each month, it may be time to buy. Though this may seem counterintuitive, making payments on a mortgage may cost less monthly than rent. Additionally, the money you spend on a mortgage becomes an investment yielding return, while rent has no return on investment (ROI). If it feels like you are putting all of your monthly budget into rent, it may be time to use your money to accrue equity for yourself rather than a landlord.
You Can Afford a Down Payment
Consider your monthly budget, income, debt, and savings. When looking at your financial situation, can you afford a down payment on a home? Though some lenders offer lower options, it’s still favorable to put 20 percent down. A higher down payment will reduce the amount you pay on the loan over time as well as reduce monthly payments. You also avoid the added cost of private mortgage insurance (PMI). If you can comfortably afford 20 percent of the house price, buying may be the right move.Keep in mind, you don’t have to put 20 percent down to afford a loan. Some programs allow zero down payment or as little as 5 to 10 percent down to qualify for a home loan. Going this route can cost more in the long run, with the additional costs of PMI and higher interest rates, but it may be worth it if putting less down preserves your emergency fund. If you have to drain your savings account to put more down, then you have no safeguard against emergencies.
For many first-time homebuyers, making a down payment is the only hurdle keeping them from buying. Fortunately, many lenders offer programs designed to help first-time buyers. Compare loan programs and seek grants or other programs designed to help buyers with a down payment. If you or your spouse is a veteran, you may even qualify for a VA loan.
If you can afford a down payment or qualify for a program that helps reduce the down payment, consider applying for a home loan.
Your Debt-to-Income Ratio Is Manageable
Your debt-to-income (DTI) ratio measures your debt in comparison to your income. Typically, your debt should not equal more than 43 percent of your monthly income. Debt includes credit card payments, car payments, student loans, property tax, mortgage payments, and home-owner association (HOA) fees. Calculate your total monthly debt as well as your monthly gross income. If your debt is below 43 percent of your income, you may be in a good position to qualify for a home loan.The less debt the better. If your debt is too high, work on paying it off so you are in a better position to afford a home mortgage. Aim for a DTI of 28 percent or lower to avoid living paycheck to paycheck. A lower DTI allows for unexpected costs and emergencies in your budget without the risk of missing mortgage payments.
You Have Extra Saved for Additional Costs
Owning a home costs more than your down payment and monthly mortgage. Make sure you have enough money set aside for closing costs as well as future repairs and regular maintenance. It’s wise to start building a housing fund for improvements, repairs, regular maintenance, and unexpected emergencies. Don’t put all of your money in the down payment so you are house poor and cannot afford to maintain it.If you have the money to set aside for additional costs, you are in a good position to buy a home. Look for ways you can start saving now and create a budget you can stick to.
You’re Ready for a Change and the Timing Is Right
When deciding whether to buy a home, you need to consider more than just your finances. It’s important to look at your lifestyle needs, as well as timing within the housing market. For instance, do you need more space to accommodate aging parents or kids? Would moving uproot your life or enhance it? Do you have expensive hobbies you cannot live without, or can you afford to cut back on some of your expenses? Carefully weigh your priorities and evaluate if buying a home fits within these priorities.Also, consider if the timing is right with the housing market. Do you need to wait until interest rates are better and housing prices are lower? Or is it a buyer’s market and the timing is ideal? If it’s cheaper to buy than rent, your lifestyle is stable, and the housing market favors the buyer, it might be time to make the move and buy a home.
When you’re ready to purchase, secure your northeast Wisconsin home loan from Capital Credit Union. We want to set you up to win with the right mortgage for your financial goals. Contact us today. Our local mortgage lending team is ready to make your dream of homeownership come true.