Tired of writing that rent check every month, with your landlord – not you – building equity in the roof over your head? It might be time to make the leap from renter to owner.
Before you do, though, know that house hunting and home ownership are a lot different than they look on HGTV. You might be ready to own a home if you can answer "Yes" to these five questions:
1. Am I financially able to manage a mortgage? Before granting a loan, lenders like to see that you've had the same employer for at least two years (showing employment stability), have enough savings to make a down payment (usually at least 3% of asking price unless you qualify for a government-backed or other incentivized loan; 20% is ideal, according to Zillow), have debt under control (no maxed-out credit cards or daunting student loans) and have an acceptable credit score (620 is often the minimum for a conventional loan).
Beyond qualifying for a loan, you need to prepare for the ongoing expenses of homeownership. That includes property taxes, homeowner association fees, routine maintenance, insurance and (occasional) big-ticket outlays for things like a replacing a broken water heater or furnace. You'd want to be able to manage those expenses without having to dip into savings you've reserved for emergencies.
2. Can I stay in the home for at least five years? Home-buying has front-loaded expenses like inspections, title fees and closing costs. Could an impending job transfer, marriage or return to college force you to move sooner, meaning you'd have less opportunity to build the equity needed to recoup those costs at resale?
3. Could I shift priorities if I had to? Most people, especially first-time buyers, find homeownership comes with financial sacrifice. That might mean exchanging that annual hop-on-a-plane vacation for a road trip to visit family. Or, you might need to nix your restaurant habit or hold on to your old car longer than you'd like. Analyze your spending habits to show whether your current lifestyle would be sustainable with new homeownership responsibilities.
4. Do I mind handling basic home maintenance? If the idea of unclogging pipes, changing furnace filters, painting, pulling weeds and mowing lawns sounds more like punishment than progress, a traditional single-family home may not be a fit for you. Focus on a condo or townhome, instead, where at least some maintenance is provided.
5. Can I manage the emotional side of home buying? In an informal office poll, we asked homeowners if they landed their dream home during their house hunt. The unanimous answer: No. Some common reasons: "My wish list was bigger than my budget," "we lost a bidding war," "a problem showed up on inspection" and "the buyer of our old home backed out, so our deal fell through, too." Apart from setbacks in finding the house itself, navigating the lending and closing process can feel overwhelming. Make sure you're up to it and that you genuinely can accept "good enough" as good enough.
Also, if you're already looking and think you may have found The One, talk with your local PEMCO agent or call us at 1-800-GO-PEMCO. We can give you an idea of what your prospective new home will cost to insure. Insurance costs can be one factor to help break the tie if you have two strong contenders, with discounts available for newer homes and those with security systems, fire resistive construction, protective devices and sprinklers. You'll also save if you bundle your home and auto insurance together, with only one deductible (the higher of the two) applying if you have a loss like a house fire that involves both your home and car.
Share on social media