So, you’re ready to stop making your landlord rich and start building equity through homeownership. But are you ready for the responsibility that comes with owning a home? Despite what you’ve heard, buying isn’t just a financial decision. There are many factors, including your professional and personal situation that should impact your decision.
We sat down with TowneBank Loan Officer Dex Auer for his advice on how to decide when it’s time to buy. Here are the five signs he uses to help clients understand if it’s the right time.
1. You’re prepared to stay in one place for a while: You should feel confident that you’ll be in the area for a while in order for buying to make financial sense. Because of the closing costs, higher initial interest payments and selling costs associated with buying, you could potentially lose money if you sell too soon.
“Buying a house is one of the best investments you can make,” says Dex. “In general, clients who look to buy over renting are looking 4-5 years down the road. Your mortgage helps build your equity and positively impacts your credit, while renting only betters your landlord’s finances.”
2. You’ve been pre-approved: It’s not likely that you’re going to purchase a house without some form of financial help. Before you start searching for the perfect place, you should obtain a letter of pre-approval. What is a pre-approval? It’s a tentative commitment from a lending institution to lend a fixed amount to the borrower, upon underwriting review. It will also help you, the borrower, understand what homes are in your price range.
“Getting pre-approved gives you more buying power and gives the seller more confidence in your offer. It doesn’t guarantee you’ll get the property, and you’ll still have to go through inspection and the underwriting process, but it is a strong indication that your loan will be approved,” Dex says. “It can also make your offer more attractive to the seller.”
NOTE: Pre-approval is based on your proof of income, proof of assets, credit reports and debt. Make sure you have all the materials you need ready to go, so you can be approved more quickly.
3. You’ve saved up: Saving money for a house is important for your down payment, as well as an emergency house fund. Owning a home is a full-time responsibility, and it requires maintenance and upkeep. If you were previously renting, your landlord likely took care of issues such as a leaky pipe or a broken AC system. When you’re a homeowner, you’ll need to have money saved up in a rainy day fund to take care of these issues and maintain your home.
Dex says, “I don’t always recommend cleaning the bank for a down payment. Cash is king and it’s a good idea to have reserves, just in case. There are a number of lower down payment options with no mortgage insurance that you can ask your loan officer about.”
4. It’s good timing: Timing is everything, and that’s especially true when buying a home. If you still have 11 months left on your current lease, it might not be a good time to actively look for a home (but that shouldn’t stop you from researching and exploring your options). The same rule applies if you only have 30 days left on a lease and need to find housing immediately.
“I typically recommend first-time homebuyers allow at least 120 days before their lease is up to find their first home. With low inventory, you want to give yourself plenty of time to find the right house rather than settling for something under a time restraint,” says Dex.
5. You understand what comes after you buy: After you find the home you love, you have to give it the love and attention it deserves. From mowing the lawn to updating appliances and scheduling regular maintenance, there is a list of things you need to do to protect your investment.
“First-time homebuyers are often unsure about additional expenses that pop up on top of the mortgage payment. It’s my job to make sure they are comfortable with the loan product they’ve chosen, so they have the financial freedom for additional home care, not just making their payment. Your first home should fit your lifestyle and make you happy for years to come,” Dex says.
Dex Auer is a loan officer with TowneBank Mortgage in Virginia Beach NMLS#.607857 He can be reached at 757-390-2255.