Are you ready to buy a house?  People dream of buying a home to put down roots and establish a cozy nest to raise a family. Most folks buying their first home are making the largest purchase of their lives thus far. Depending on the circumstances of the sale, buying a home can be a good financial decision. When you pay monthly rent, you may be getting a nice place to live but your money isn’t working for you as it does when you are ready to buy a house.

Home ownership has distinct financial advantages. Unlike renters, homeowners build equity with each monthly house payment and you get this equity back upon sale. If your home increases in value, you will realize a profit when you sell.  Another financial benefit of home ownership is that property taxes and mortgage interest are tax deductible.

When should you buy a home?  There’s no correct answer, but understand that owning a home is a commitment. If something breaks or needs to be replaced, the responsibility falls on you. You’ll be responsible for paying the utilities, taxes, and the day-to-day costs of keeping the home maintained. How to know if you’re ready to buy a house? Consider these factors when determining if you are ready to buy a home.

How Do I Know If I’m Ready to Buy a House?

When it comes to purchasing a home, there’s no magic formula to know if you are financially ready to buy a home, but there are a few key areas to consider.  Think about the security of your employment and what your other financial obligations are. What kind of credit card debt do you have? Do you have student loans, car payments, or other personal loans?  What, if any, financial assets do you have?  All of these factors can influence your ability to buy a home.

What is your credit score?  Mortgage lenders will look at your credit score to determine whether or not to give you a loan.  This number reflects how many credit accounts you have opened, your history of making timely payments, and how much debt you have overall.  A higher credit score generally indicates better credit worthiness.

Am I Ready for A Mortgage?

In general, many people discover that their mortgage payment is the same or less than their typical monthly rent payments. While this may be true, you also need to consider property taxes, homeowners’ insurance, homeowners association (HOA) fees where applicable, and utilities that may have been included in your rent before.

Square one for homeownership is understanding how much per month you can truly afford. In general, there are a few different methods used to determine what monthly payment you can manage. The Federal Housing Administration (FHA) generally uses the 43%/31% debt-to-income ratio model.  This means that the FHA wants your monthly housing costs to account for no more than 31% and all monthly financial obligations to comprise no more than 43% of your total gross monthly income.

Calculate your debt-to-income ratio by adding your monthly financial obligations and dividing by your monthly pre-tax income.  A homeowner’s financial obligations might include mortgage, property taxes, insurance, HOA fees, alimony, child support, auto loan payments, student loan payments, credit card payments (use the minimum payment amount) and any other monthly payments.

To determine the total allowable amount for an FHA loan, if you make $5,000 a month in gross income, you would multiply that by .31 which would provide up to $1,550 available for housing costs. The allowable debt to income criteria of 43% shows that you could have total debts up to $2,150 and qualify.

You’ll also need to consider how much money you already have saved. Owning a home will likely require you to have to pay a down payment, and this can vary depending on the home, your area, and any credits or assistance you may qualify for. You’ll also need some money for closing costs, taxes, and insurance. You may even have some upfront repair costs to consider. These few aspects can easily add thousands of dollars to your initial investment.

Can You Afford the Cost of Home Ownership?

Homeownership is different from renting. When you rent, you can call your landlord or maintenance team whenever you have an issue. With homeownership, you will be responsible for maintenance, upkeep and repairs. It’s important to have a small contingency fund set aside for emergencies, or some available credit on a credit card to handle unexpected repairs.

How Do You Know When to Buy a House?

Buying a home is a commitment. Consider your lifestyle, and how owning a home may affect it. Many financial experts suggest living in your home for 5 years or more before selling due to the transaction costs associated with selling a home and moving. Carefully consider your lifestyle and your finances to determine whether or not now is the best time to purchase.

Ready to Start Looking for the Perfect Home?

When you are looking for a home, there are many things to consider. Do your research and take the time to explore the different housing options available in your area. One great option to consider is master-planned communities like Union Park by Hillwood. Union Park has new construction homes from top DFW builders with options to fit families of all sizes and stages of life. Take a virtual tour to see our one-of-a-kind amenities including an outdoor fitness park, two pools, event pavilions, fishing ponds, trails, an on-site elementary school, a dog park, a food truck park, and much more! Union Park has created the perfect community atmosphere that many people search for in their first home buying experience. If you are ready to start your home search journey, contact Union Park by Hillwood today.