So you’ve grown weary of renting a home or apartment and find yourself scanning the local real estate listings. Perhaps you’ve driven by a few homes for sale that look appealing or you’ve attended a few open houses hosted by local realtors. No one can blame you for wanting out of the renting cycle. It’s expensive and offers no investment value. However, before you set your heart on that perfect listing, you should consider a few key economic, personal, and lifestyle factors.
Economic Factors to Consider
If you’ve saved enough money and currently generate enough income to purchase a home, that’s great. However, depending on the current economy, it may not be the best time to spend those hard-earned dollars. One economic factor to consider is the current interest rates on mortgages. Similar to the interest rates on bank accounts and cd certificates, mortgage rates vary depending on the current economy.
You can easily research the national average, and then survey lenders in your area for the most competitive rates. If the economy is experiencing a high rate of inflation, mortgage rates may be high. If the economy is slow, mortgage rates may be lower. A lot of factors go into determining these rates. You just need to be aware that a higher interest rate on your mortgage will cost you a significant amount more money throughout the life of your loan.
The housing market is also directly affected by the current economy. Again, you can research national trends and then investigate what’s going on in your area. If homes are currently selling quickly for prices that exceed their value, the market is not ideal for buyers. If homes are selling slowly, and sellers are negotiating lower prices in order to make a sale, the market is more favorable for those in your position.
Personal Factors to Consider
The most obvious personal factor that will determine whether you’re ready to purchase a home is your debt-to-income ratio. This is the number that lenders will use to determine whether they can offer you a loan to purchase the home. Basically, they calculate the total of your monthly bills and compare it to your total monthly income. If your monthly income exceeds your monthly debts by a certain percentage amount, a lender will offer you the loan. This ratio can vary depending on the lending institution.
Another key factor to consider is how much money you can put toward a down payment on the home. A large down payment will significantly reduce the amount of money you need to borrow. Before committing your entire savings toward this initial investment, consider how much cash you need to keep on hand for emergencies. While it may seem appealing to put everything you have toward a large down payment, it’s unwise to leave yourself without a certain amount of readily-available funds.
Lifestyle Factors to Consider
Once you’ve determined that the economy is ripe for purchasing a home and you feel that you have enough funds to do so, consider whether home ownership fits your current lifestyle. First, are you content staying in the same area for a lengthy amount of time? It can be financially disadvantageous to sell a home within just a few years of purchase. Also, you may not be able to sell the home as quickly as you would like if you need to move.
Another key consideration is whether you’re prepared to manage the upkeep of a home and potentially a lawn also. You will need to either purchase the equipment or hire others at your expense to maintain and fix any issues that may crop up with the plumbing, wiring, or appliances. Be sure you’re prepared to shoulder this responsibility before purchasing a home.
Shopping for your first home should be an exciting time in your life. By carefully considering the economic, personal, and lifestyle factors that affect the decision to buy, you can ensure that your first home ownership experience is a success.