Just because you can make a certain monthly payment on a fabulous home doesn’t mean you can truly afford it, or that you’re ready for the responsibilities of home ownership. Consider these guidelines to help you decide whether or not you’re ready to take the plunge.
- Be as debt-free as possible. Take care of outstanding credit card balances, and make sure your bills are up-to-date. Having a car payment or a monthly cell-phone bill won’t kill you, but if you can’t even pay off credit cards or cover your obligations, lenders will question your ability to pay a mortgage.
- Save up for a down payment. Though homes can be purchased without a down payment, having cash to put down will get you a better mortgage, and you’ll save a healthy chunk of interest in the process. Making a 10 percent down payment is a good rule of thumb.
- Have an emergency fund before you purchase. It only takes one major problem such as a burst pipe or a furnace failure to instantly set you back thousands of dollars. If you’re not responsible enough to prepare for the worst, then you’re probably not ready to purchase a home.
- Consider all the expenses. Don’t forget about things like property taxes, utilities, maintenance costs, and insurances. These are just some of the ongoing costs associated with buying and maintaining a home.
- Decide on what you can afford before house hunting, and then stick to it. Don’t be wooed into a higher price bracket by a pretty home—decide on a price before house hunting. A good rule of thumb is to not exceed 30 percent of your income on your mortgage payment. Don’t base your figures off combined incomes if you’re married; being able to stay in your modest home should you or your spouse become unemployed is far better than losing your extravagant mansion because you overextended your budget.