The largest investment that most people will make during their lifetime is taking out a mortgage to own a home. Purchasing a house may be a lifelong dream for many people. However, it is not one without risk. According to FDIC.gov, one in every 200 homes ends up in foreclosure.
Choosing to purchase a house is a decision that should not be made lightly. Here are four things you should consider first.
1. Will You Need to Move in the Future?
First, you should consider whether buying a home would be the correct course of action in the context of your life now as well as your life in both the short term and long term future. One thing about buying a home is that it will fix your location in a specific town or city. While there is the possibility of selling and buying again, that can be a long arduous process. Do you plan on living in the same place for the next ten to twenty years? Is there a possibility you may be forced the move at some point due to work?
If moving in the next few years is possibly in the cards for you, renting may be the best option. Mortgage terms can range from 10 to 50 years. Buying a home should only be done if you’re willing to make the long term commitment.
2. Do You Have Healthy Credit?
Not everyone can buy a home. Many people are rejected outright when applying for a mortgage. One thing that will certainly determine whether or not you are approved for a mortgage is your credit score. According to Forbes, you will have serious issues with lenders if your FICO credit score is below 550. Alternatively, a FICO score above 750 is considered to be very good.
The health of your credit will also determine what kind of mortgage you are approved for. With poor credit, you can expect to make much higher monthly payments. That is if you are accepted at all. Overall, it may be wise to take some time to repair your credit by paying off your debt and correcting poor spending habits before you consider looking for a house. It can allow you to obtain a better mortgage and help insure that you have the discipline to pay it off.
3. Do You Have the Finances to Own a Home?
Beyond the health of your credit, you also need to assess the health of your finances in general. Do you have a steady stream of income that is unlikely to get interrupted in the future? You need to have the ability to make your mortgage payments every month in addition to every other bill you will have to pay. This could include bills for electricity, water, phone services, internet and TV. “Living in a house can also require paying other expenses such as the cost of remodeling and maintaining your home,” said Extreme Agent.
If your income is sound, you also need to save a considerable amount before you buy a home as well. Buying a home in most cases requires making the initial down payment. The down payment could range anywhere from 5 to 20 percent of the home’s overall value. Making a larger down payment may also allow you to obtain a mortgage with more preferable terms.
4. Is the Home in the Best Location for Your Family?
Lastly, you need to consider where a home is before you decide to buy. Many people make the mistake of deciding on a home to purchase based mostly on price. However, sometimes certain homes are inexpensive for a reason. There may be a high crime rate in that neighborhood. Sometimes it’s even the result of geographic factors. If a home is within the floodplain of a river, there is a high chance that it will be repeatedly flooded.
Overall, do the proper research. If you are planning on having children, make sure you are in a good school district. Make sure the neighborhood is safe and has enough to offer your family in terms of employment prospects, medical services, entertainment and leisure. The surrounding area can really have a large impact on your quality of life.