Should I Become a Homeowner?
Photo credit: Alan Cleaver; License: CC 2.0
Before you talk to a real estate agent about buying your first home, it’s important to consider whether becoming a homeowner is right for you. To become a homeowner, first, you need to think about renting vs buying. Then, if buying seems like the right move, you will have to determine if you can really afford it.
Rent vs. Buy
The first question you ask yourself when looking for a new place to live will lead the rest of your decisions. Would it be better for you to rent or buy? Buying can be appealing since you can end the rising rent and build equity. When you become a homeowner, however, the reality of regular home maintenance and repairs can drain a bank account rather quickly.
Deciding if renting or buying is better for you will largely depend on your circumstances. Here are a few simple questions for you to think about when considering the question, ‘Should I become a homeowner?”
- How long do you plan to stay in this area? Renting could be a better option if you plan to relocate in just a few years.
- How much can you afford? It might be worth it to rent if you can’t afford a home large enough to fit your family, so you can continue to save more for a downpayment.
- What is available on the market? It’s not worth getting a house if you can’t find one you like.
Here is another thing for you to consider. According to research, stretching your budget can make you miserable even if it’s for your dream home.
Are both your lifestyle and the hard numbers pointing you toward buying? Then the next step for you to take is to find out how much home you can afford.
Can I Afford to Become a Homeowner?
The biggest financial decision most people will make is to become a homeowner. There are many factors that go into that decision.
First, take a look at your budget when determining how much you can spend on a house. It’s good to review the last couple of month’s bank statements and your spending habits. They can help you figure out how much you are spending each month.
Once you have a better idea of your spending habits, then you need to determine how much you are willing to put toward monthly home payments. This figure includes everything that makes up your mortgage payment:
- Principal
- Interest
- Tax
- Insurance payment
Most lenders use the Federal Housing Administration formula to determine how much home you can afford. It recommends allocating a maximum of 31% of your monthly income to housing payments. This can differ based on your debt. Buyers that don’t have debt might be able to budget up to 40% of their monthly income. However, you need to remember that you still have to cover things like:
- Heat
- Water
- Electricity
- Home maintenance
- Food
The banker will also look at your total debt-to-income ratio. This includes car payments and credit card bills and should not go over 43%.
Remember that buying a home includes more than just the mortgage. There are other one-time payments that can add up quickly, including:
- Closing costs
- Legal fees
- Inspections
- Appraisals
- Moving fees
- Home improvements
If you know that you want to become a homeowner, and you are ready financially, then give us a call. Affiliated Home Solutions has worked with hundreds of first-time home buyers. We can help you navigate the home buying process and help you become the happy homeowner of your dream house.