It’s no secret that the pandemic has caused a surge in home sales over the course of the past year. Many people rushed to get out of major cities and into a larger home of their own (perhaps one with a backyard!) which offer many homebuyers a more comfortable place for working from home, schooling from home, and everything else from home. And while a beautiful new space can be a wonderful investment as well as providing emotional security during a stress-inducing time, there are many challenges that come with buying a home. If you’ve never taken the first steps into home ownership, how do you know if you’re financially ready to buy a home?
At HerMoney, we consolidated some of the best tips for first-time home buyers looking to get into the real estate game, so that you can make sure you’re making the right decision for you and your future.
Have You Checked In With Your Finances — ALL Of Your Finances?
Amy Richardson, CFP, cautions, “Before making a home purchase, make sure your financial house is in order.” Richardson suggests making sure you have sufficient emergency funds, contributing to your retirement accounts, and paying off any high-interest debt (like credit card debt) you may have.
CFP Justin Pritchard also warns that anyone buying a home must be able to afford the maintenance, which can vary greatly from month to month, and includes any potential issues from plumbing and roofing, to infrastructure mishaps. “Some people suggest budgeting 1% for annual maintenance, but it can certainly be higher than that, especially if you buy a property that’s been neglected in recent years,” he says.
Do You Know Your Debt?
One of the biggest pieces of the puzzle when it comes to understanding your financial situation is having a comprehensive view of your debt — and a plan for paying it off. “You’re not required to be completely debt-free to purchase a home, but you should keep your debt-to-income (DTI) ratio in mind,” Richardson says.
She also suggests that you make your payments on time, and look into refinancing if student loans are an issue.
“New laws allowing people to refinance their student loans to lower interest rates can have a positive impact on your overall finances and ability to save for your future home purchase by allowing you to free up more of your income for your down payment savings strategy and/or mortgage payment,” she says.
Is This The Right Time?
Before buying a home, you have to make sure that you fully understand the implications of such a major purchase. One of these, Pritchard explains, involves staying in one place.
“Buying a home makes the most sense when you have some location stability,” he says.
If you’re going to move in the next few years, it might make sense to rent.”
This also involves taking a comprehensive look at the other items on this checklist to determine if this is really the right time for you to buy a home.
Is This What You Really Want?
Buying a home for the first time is a big deal. It may be a home that you live in for years to come, so it’s important that you’re emotionally comfortable with making such a major purchase, and that you truly love the home. If you’re feeling the love for your home, the location, and you have a good handle on your finances, then that’s all any buyer could ask for. “You might just be ready!” Richardson says.