Buying a house is one of the biggest investments that a person will make in their lifetime. More and more young people are making this investment, with Millennials – those born from 1981 to 1996 – now entering the housing market. In fact, they are the largest generation engaged in the housing market today, with nearly two-thirds of them saving up to buy their first home.
However, 63% of Millennials who have bought a home find themselves experiencing buyer’s remorse. Why? The biggest reason is that they underestimated the hidden costs associated with buying and owning a home, such as insurance, property taxes, and annual maintenance. Another one is the location and the size of the home. These regrets are why it is important that, before you purchase a home, you consider the following factors:
Your Current Finances
The state of your finances is maybe the most important aspect to consider when deciding to buy a home. When assessing your finances, you should ask two questions:
- Do I have the money for a down payment?
- Can I afford mortgage costs?
Ideally, you need to put down at least 20% of the cost of the home as down payment, so that you can avoid having to pay private mortgage insurance(PMI). PMI protects the lender, not you; you might end up owing more money than the house is worth.
Currently, the mortgage rate in Tempe has experienced the biggest drop in a decade, with 30-year fixed rate mortgages hitting 4.06%. However, mortgage rates change. It is vital that you think about future mortgage payments aside from the current ones if you’re going to buy a house.
Your Financial Future
When deciding whether to buy a house now or wait for a bit, you should think about the future of your finances. If you are expecting major changes to your cash flow – like if you’re going to change careers – it might not be a good idea to buy a home just yet. Wait until you have more solid footing.
You should also have emergency funds to help pay for your mortgage payments and any home maintenance costs, should anything go wrong in the future.
Your Credit Score
Your credit score is just as important as your financial state. It determines your interest rate, and whether a mortgage lender will give you a loan at all. Low credit scores can result in higher interest rates. Typically, you may need a credit score of about 720 to get the best rates.
If you have a low credit score, you can improve it by settling some debts, such as student loans, and exhibiting responsible borrowing behavior. You can do that by ensuring that you make payments on time every month and by not applying for any new loans.
Your Commitment to Owning a Home
Your house doesn’t come with a landlord. Unlike renting, having your own home involves taking care of all your home repairs and maintenance. You will have to clean out your own gutters and do your own yard work, among others. While some embrace these chores, others balk at the mere thought of it. Consider whether you’re ready to take on these homeowner-related responsibilities.
All these factors need to be weighed before you choose to buy a home. Make sure that you are making an informed decision, because, if you aren’t, you may find yourself struggling in more ways than one.