Updated: July 5, 2022
Transitioning from renting to purchasing a home is exhilarating and liberating, often representing the realization of the American Dream for many. However, it is a pivotal step, both in terms of your future and your finances. It's a long-term and sometimes lifetime commitment that necessitates, among other requirements, a solid financial position.
Our years of realty service in Chatham and Wake counties have given us some insights into the various nuances of homeownership. So when can you say you are ready to buy a house?
Have a Healthy Debt-to-Income Ratio
Money is the first and most straightforward consideration. If you have the financial capacity to buy a house outright, you can buy one now. Even if you can't pay upfront, most financial experts contend that if you can qualify for a mortgage on a new home, you can afford it. But how much can you afford in terms of a mortgage?
The Federal Housing Administration commonly uses a debt-to-income (DTI) ratio of 43% as a guideline when granting mortgages. This ratio is used to estimate if you will be able to repay your monthly payments. Depending on the real property market and prevailing economic situations, some creditors may be more liberal or strict.
A 43 percent DTI indicates that all of your monthly loan payments, including your housing-related expenditure; mortgage insurance, mortgage, homeowners association fees, property tax, home insurance, and so on—shouldn't exceed 43 percent of your total monthly income.
Have a Ready Emergency Fund
Trying to pay for homeownership expenditures while still making other debt payments may put you one roof leak or HVAC breakdown away from foreclosure or bankruptcy. You can't call the landlord to fix the plumbing when you're a homeowner. It's up to you to choose whether to fix it yourself or hire a professional to do it for you. Housing maintenance fees can reach upwards of $1,100 each year. With this, you will have to cover most of your debt and save up towards an emergency fund before making a house purchase decision.
You Plan on Settling for a While
The first aspect to consider when buying a house is affordability, but you should also consider how long you plan to stay there. If you don't, you risk becoming trapped in a house you can't afford in an area you want to leave.
As a rule of thumb, most financial experts recommend living in a house for up to five years before selling it. According to housing statistics, the longer you stay in a house, the more equity you accumulate. You have to account for the expenditures involved in purchasing, selling, and relocating. You also have to factor in the breakeven point for the mortgage costs linked with the house you're selling. It may not be the ideal time to buy a property if you can't decide which city or town you want to reside in or what your five-year plan is.
You Can Afford Moving Expenses
Don't forget that buying a house also entails moving! As a result, make sure you have a separate fund set out for relocation expenditures. Hiring movers in Chatham and Wake Counties averages $432 for a local move.
Aside from the heavy lifting, you may also have to spend on moving boxes, bubble wrap, deposits on utility services, janitorial supplies, painting, new furniture, and closet organization, among other pre-move-in home improvements.
Make sure you are ready for all these expenses.
You can Pay Enough Down Payment
The best approach to purchasing a property is to pay everything upfront. If buying a home with cash isn't an option this year, establish a goal of saving at least 20% of the purchase price for a down payment. Never take out a mortgage with less than a 10% down payment because you'll wind up paying a lot more in interest and fees, keeping you in debt for decades.
Any down payment of less than 20% will require you to pay for private mortgage insurance, which serves as a safety net for the lender if you default on your payments. Depending on the size of your down payment and your credit score, PMI might cost anywhere from 0.5 percent to 1.50 percent of your mortgage - that's an extra $2,000 per year on a $400,000 home.
The Economic Outlook Favors You
There are periods when property prices are depressed, and there are times when they are very high. If prices are so cheap that it's obvious you're getting a fantastic bargain, it's an indication that it is an excellent time to buy. Low prices improve the chances that time will work in your favor in a buyer's market, and your home will appreciate over time.
You Have a Trusted and Reliable Real Estate Agent in North Carolina
While there are numerous internet resources to assist you in searching for a new home, nothing beats getting direct counsel from a professional. Working with a professional and seasoned real estate agent will provide specific hands-on guidance that you may struggle to find online. You might also learn about homes that are put up for sale before they are available to the general public.
Having a buyer's agent allows you to save money and time.
In most circumstances, the house seller pays your agent's commission, so you don't have to spend anything to get skilled assistance! Even better, by working for your best interests at the bargaining table, a buyer's agent can save you big bucks on your dream property. You will also have to sift through tons of documentation if you don't hire an agent. Save yourself the hassle and allow an expert familiar with all of your county or city's laws and regulations to handle the paperwork for you.
If all the above requirements speak to you and you are ready to make the giant leap to homeownership, reach out to us at Chatham homes. Our dedicated professional agents will provide informed, professional service to you across Chatham and Wake Counties.
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