How You Know You Are Ready To Buy Your First Home

Here are some signs that tell you that you are ready to purchase your first home.

A slowing real estate market is a great time for people to buy, because they can negotiate their best deal. When you’re purchasing your first home, you should consider more than the state of the market. In fact, when you are purchasing your first home you should make that decision on personal factors and don't worry about what the market is doing.

1. You have a budget and you use it
   When you own your home you will find that there are many new expenses. You need to know where your money is coming from and where it is going every month. This will tell you how much you can afford to spend on a home.

   Do a test and draw up a budget for a home in the area you wish to live. Find out how much a home will cost in this area and how much your mortgage payment will cost. Then include utilities, homeowner's insurance, property taxes, condo or HOA fees, and maintenance of the property. Don't forget to include the cost of a longer commute, if appropriate.

2. You have a down payment
   It used to be that you had to have 20% of your purchase price to get a mortgage. That means that if you bought for $200,000 you had to have $40,000 to "put down."

   Nowadays, you can get around this by putting down little or nothing, but you will pay extra in your monthly payment for mortgage insurance, or you may need a second mortgage with a higher interest rate.

   Be careful in a slowing market, because houses tend to appreciate less, which means that you do not have the opportunity to build enough equity to make a profit, or possibly just break even if you sell quickly.

   Also, don't forget closing costs. You will need to have cash or negotiate other ways to pay your closing costs at settlement (typically 3% to 6% of the sales price).

3. You have a steady source of income
   Remember, buying a home is a long-term commitment. You may be covering your bills now, but you will still have that mortgage payment a year from now. Take a look at your future and decide if your income source is reliable over the long-term. Also, factor in family plans, like children, going back to school, etc.



4. You have emergency savings
   Plan on having 3 to 6 months of living expenses in the bank, or some other liquid account, in case an emergency arises. If you get sick or suddenly lose your job you want to be able to continue paying your mortgage until you get back on your feet.



5. You have good credit
   It doesn't have to be perfect, but it has to be good enough for a mortgage lender to consider you for a loan. Pay your bills on time. If you haven't done that in the past contact a mortgage lender and ask them to make some suggestions that you could do to "clean up" your credit report.

   Also, lenders will look to see if you can actually afford to pay your mortgage. Imagine that! They will calculate a ratio to make sure your mortgage payment is no more than 33% of your monthly income. Then they will see that your mortgage payment and all your other debt is not higher than 40% of your income. So, it pays to keep your credit card spending under control.

6. You are not leaving the area soon
   Once you purchase you will want to live in your new home for a minimum of 3 - 5 years. That's how long owners usually keep their homes so that appreciation will cover their costs for buying and selling.

   If you're planning to get a new job in a different state or going back to school continuing to rent might be a better idea for now.

7. You can do or arrange for your own maintenance
   When you own your home you are the one responsible for repairs and maintenance. You need to consider that houses occasionally need plumbing and electrical maintenance, roof repairs, gutter cleaning, and lawn care. Be prepared physically and financially to handle these extras.

   If you have all these things in place, "Congratulations! "You're ready to buy your first home. If you are not there yet, don't worry. Hopefully, this list will help you work on the things you need to do to get ready.