Is now the time to buy your own place? Here are the ways to know when it makes sense financially to purchase your first Alamogordo home.
Here is a checklist of eight things first-time homebuyers should have squared away before they consider a purchase.
You are ready to buy when …
#1 You have a budget — and you know how to use it
Owning your own place comes with many new expenses, so good money-management skills are a must-have. If you don't have a household budget right now, it's time to start. You need to know where you are financially — where your money is coming from and where it goes every month — to know exactly how much you can afford to spend on a new home.
Once you have your current finances sorted out, work out a budget for homeownership. Find out how much homes cost in your area and how much your mortgage payment will run. Make sure to include all your utility bills, homeowners insurance, property taxes, homeowners association fees, and maintenance and upkeep costs, as well as higher commuting costs if you're considering a town or community farther from work.
#2 You have a sizable down payment
Traditionally, to get your foot in the door, you'll need a down payment worth 20% of the home price. That means for a $250,000 home, you'll need $50,000 upfront. But there are ways to get around that with zero- or low-down loans, but those options are going to cost you. You may have to pay extra for private mortgage insurance or take out a second mortgage right off the batt with a much higher interest rate. With the slowing housing market, having that 20% down payment becomes even more important because you'll start off with some equity in case you have to move earlier than expected.
# 3: You have a reliable source of income
Buying a home is a long-term financial commitment, so you'll need consistent cash flow to cover those monthly payments — not to mention the little extra expenses that come with homeownership. Consider what would happen if one or both people involved in the mortgage payment were laid off, someone had a baby or other issues. These are all things to have back up plans for just in case.
# 4: You have an emergency savings fund
If you have enough cash on hand to cover three to six months of your living expenses, you're one step closer to being prepared for homeownership. Just in case something happens to disrupt your steady income — say a serious illness, unexpected layoff or even a natural disaster that prevents you from working — you want to make sure you can still afford to make your mortgage payments until you can get out of your rough patch.
# 5: You have your debts under control
Lender need to know you have all the funds necessary to pay your bills, so before they'll give you a mortgage, they take a look at your debt-to-income ratio. Before applying for a mortgage lenders want to make sure you can qualify for as much money as you'll need. This also means you should avoid taking on any substantial new debt six months to one year prior to your purchase, or you may throw your ratio off. This is not the time to rack up credit card debt or buy a new car.
# 6: Your credit report is in good shape
You don't have to have perfect credit to become a homeowner, but a decent history can help you get a lower interest rate on your mortgage and a lower monthly payment. The government allows you to check your credit history free once a year from each of the three main credit bureaus, Transunion, Equifax and Experian, so take advantage of these to find out what lenders see about you. If you see any errors, correct them now. If you see room for improvement, find out how you can boost your score.
# 7: You can make a long-term commitment
Are you ready to stay put for at least three to five years? Typically, that's how long you'll have to keep the house in order to recoup your buying and selling costs. If you sell before then, you may lose money on the deal. And if you do turn a profit, you'll have to pay capital gains taxes if you lived in the house less than two years. The length of your stay becomes even more important now that home appreciation has slowed from its previous pace.
# 8: You are prepared to become your own landlord
Even if you can afford homeownership, don't buy simply because you can. You need to make sure you're ready to live the lifestyle. Owning a place comes with a large amount of new responsibilities, headaches and costs. When you rent an apartment, you simply call the landlord if something breaks. With your own home, if it's broke, you fix it — or you'll have to pay someone else to fix it. You're also responsible for upkeep, including yard work and shoveling snow. Will you have the time, energy or desire to maintain the property? How about the money for all those little extras, such as buying your own lawn mower and hiring the occasional plumber? Make sure you know what you're getting into.
For more tips on home buying in the Alamogordo real estate area, contact our offices today! We would be happy to assist you in the process.