5 Ways to Know You’re Ready to Buy Your First Home

Guest Post By : Emily Thomas
If you’re a new college grad like myself (or a first time home-buyer) buying a new home can seem like a commitment you feel you aren’t ready to make. Aside from getting married and buying your first car, buying your first home is one of the most important decisions you will make in your life. Like most other financial decisions, it is important not to approach the decision based on emotion or simply because “everyone else is doing it.” Buying a home is a personal decision that needs to fit your current or planned lifestyle that requires some strategic planning beforehand. If you feel you are in the position to buy a home (or you aren’t sure) here are five things to consider if you think you’re ready to buy your first home.
1.    You budget your finances and you are aware of the extra expenses you will be taking on.
As with most big purchases, owning your own home comes with an extra slew of expenses. Before I managed my own budget, I used to treat myself daily to a gourmet coffee from Starbucks (I mean, I am a Seattleite, right?) without realizing that I was spending an extra 60 dollars a month on coffee alone. Suddenly my strong desire for pumpkin spiced lattes began to dwindle when I realize how many hours I was working a week just to pay for coffee. When buying a home, it is essential that you are aware of exactly how much money is coming in and where it is being spent each month. If you’re like me and were unaware of the fact that you were spending a considerable portion of your money on something like Starbucks coffee, admitting to your unnecessary spending is the first step. The next step is to start a household budget (See "Build your budget" and "A simpler way to save: The 60% solution" to learn how), which will allow you to see how much you can afford to spend on a new home. Once you have your current finances sorted out, draw up a mock budget for homeownership. The next step requires a little research on your part to find out how much homes will cost in the neighborhood you’re looking to buy in and how much your mortgage payment will run. Then, make sure to factor in utility bills, property taxes, insurance, homeowner association fees, as well as upkeep costs that come with owning a home. If you can’t afford to pay the excess expenses that come with owning a home (or you can’t give up your favorite Starbucks drink) it’s never a good time to buy—even if the real estate market is prime for buyers.
 2.   You can afford to make a sizeable down payment for your new home.
Traditionally when buying a home, you will need at least 20% down payment worth of the home price. That means for a 250,000$ home you will need to put down 50,000$ upfront. While there are ways to get around paying that much money, they will eventually cost you money in the long run. Having a 20% down payment is important because it gives you a safety net incase you have to move sooner than expected. It allows you to start building equity with the mortgage payment. And although moving to a new city or state can be one of the most exciting things in your life, you won’t be excited if you have to sell your home earlier than expected and lose money in the process.
 3.   You Have a Steady and Reliable Source of Income.
There is definitely a possibility that you have the other two necessities (a strong hold on your budget and enough money for a 20% down payment) but you don’t have a steady source of income. Even if you have a steady job it is important to look at where you see yourself in the next 5 years and ask yourself if that lifestyle will support paying for your new home. For example, while I have a steady job now and a hefty chunk of change in savings—I know that a majority of my money will be spent going back to school and getting a masters degree. In my case, I would be able to start saving for a new house, and maybe buy one in a few years if school wasn’t in the picture—but because it is that is an extra 100,000$(or more) of expenses I have to take into consideration. It is also important to realize that although you can plan for a majority of major life events, some things come when you least expect them to. If you are in a new marriage and both you and your spouse are working you both might be able to afford a new house now—but becoming a parent at an unexpected time could throw a joyous (yet pricey) wrench into your budget if one parent decides to take a few years off of work to raise your child. Buying a new home is not just buying a place to live—but it’s also buying a new lifestyle, sometimes a more permanent one. This is why it is important to look at your life and what you want so that you can eventually end up where you want to be.
 4.   Your Credit Report is in Good Shape
If your credit score is not ideal at the present moment—have no fear, it does not mean you won’t be able to buy and afford the home of your dreams. However, a decent credit history can definitely help you get a lower interest rate on your mortgage and your monthly payment. Remember that bad credit can sometimes happen to good people (you don't have to explain getting a little too credit happy with your first credit card to us.) Luckily, the government allows you to check your credit score once a year for FREE—which is something I highly recommend. Take a peek and see what lenders are saying about your credit and correct any mistakes that you find as well as find out ways you can improve your score. If you know you want to buy your first home within the next two years, try your best to not live an extravagant life-style you know you can’t afford. Make sure you don’t miss any payments and earn any other black marks that could lower your estimation in the eyes of lenders. Again, this may mean cutting out some lattes here and there or not buying those shoes you’ve been eyeing since you started eating ramen noodles every night for dinner in college, but remind yourself that your sacrifice will be worth it in the long run.
 5.   You’re Not Afraid to Say “I-do” to a Long Commitment
When I was 18 I remember wanting to get a tattoo that I knew my parents would hate. I spent all night with my best friend making a convincing presentation for my parents about why I should get a tattoo and why they shouldn’t be upset with my decision. Surprisingly, my parents weren’t as hard to convince as I thought, but my mom made a lingering comment that haunted me every time I stepped foot in a tattoo parlor, which was “Emily I don’t care if you get a tattoo—it’s your life and your body. You need to ask yourself if you want to commit yourself to having the tattoo on your body for the rest of your life—even after your interests and desires change.” It was in that moment that I realized that while the thought of getting a tattoo because I could seemed like a great idea at the time—I knew I would regret it later on when I no longer was interested in the lyrics I wanted to tattoo on my arm (and I can say with complete honesty that I no longer listen to the band or care for the song I thought I would love forever.) While buying a home is a much greater commitment, the same principle applies. You have to be willing to stay put in one city in one house for a couple of years in order to recoup your buying and selling costs. Just because you can afford to buy a house doesn’t always mean that you should if you know that a part of you wants to relocate in the near future.