Buying a home is the biggest financial decision most Americans will ever make. Ownership is more than a special feeling of success, it is also an obligation that will take many years to see through to the conclusion. It is not something that you can do without careful planning, and– which is equally important– proper financial stability.
Plan For the Future, But Buy On Today’s Salary
According to CNN Money’s Tips for Buying a House, you should not purchase a home if you are not planning to live in it for several years. Housing markets vary widely, and buying today with plans to sell in a few years could leave you holding a mortgage on property that is not worth what you owe.
The article goes on to say that you should calculate the long term costs of the home carefully. It can be difficult to guarantee future salary increases. The rule of thumb is to limit yourself to no more than 2 to 3 times your annual salary, but use a mortgage calculator and check the numbers carefully. Keep in mind that the mortgage is only the one debt among many, including
- Home Management(food, utilities, clothing, entertainment, etc.)
- Insurance Policies(home, auto, health, business, and more)
- Home Repairs and Maintenance
- Car Loans and Upkeep
- Children and Education(supplies, sports, college, etc.)
- Credit Cards and Other Debt
- Unexpected Bills(anything can go wrong)
Pre-Approval Opens Doors
Contacting a lender before you start looking at houses can help you identify which homes are within your financial means. More than that, pre-approval will also give Realtors an incentive to help you find a home, because they will know that you are serious, and have the means to follow through.
Upsize Your Down Payment
Most lenders will require at least 5% down, but the minimum varies with economic trends. The more you can put down on the home, the lower your mortgage payments will be, and that will save you thousands of dollars in interest costs. Among other advice, Clearpoint Credit Counseling Solutions suggests that potential homebuyers set aside a fixed amount from each pay period, and stick to it. You have to give up luxury expenses for a couple of years, but the long term benefits are outstanding.
The Burden of Responsibility
Consumer Credit Counseling Service of Orange County warns that owning a home is not all rainbows and butterflies. The personal satisfaction of owning your own home will be tempered by many different factors, including
- Long Term Mortgage Obligation
- Initial Expenses Which Exceed Rental Costs
- Less “Entertainment” Money
- Maintenance Reduces Free Time
Your future financial security depends on resisting the urge to buy before you are ready to do so. Talk to a financial advisor, get your credit in order, and put a lot of thought into how, when, and what you should buy, and once you are sure that all of the variables are right, you can enjoy the benefits of living the American dream.