Buying a house, especially in Columbus, Ohio, is a big and exciting step. However, it also requires some preparation and forethought before starting to shop. Affordability and stability are two main factors potential buyers need to consider, but there are also a few other items that indicate the time is right. Here’s how to know if you’re ready.
1. You make enough money.
This, of course, is about more than just an annual salary, but about being able to afford everything that comes with buying a house. That includes the down payment, closing costs, an emergency fund for unexpected expenses in the first six months, as well as moving and decorating costs. This should all work out to be less than 28-percent of your gross income, and a mortgage calculator can give you an idea of how that might look.
2. You don’t have much debt.
If your total debt, including student loans, credit cards, car payments, etc., is less than 36-percent of your gross income, you should be in good standing. A goal to aim for is the federal guideline of a final grand total of a 43-percent debt-to-income ratio once housing expenses are added to the equation.
3. You have enough savings.
You have enough for at least a 10-percent down payment and the private mortgage insurance that comes with that. (A 20-percent down payment will eliminate that extra expense.) You can also cover the closing costs, moving expenses, and property taxes due at the time of the final settlement with a reasonable amount of money left over. If a down payment cleans out your savings account, then it’s best to put some strategies in place to build up that nest egg before house hunting. Consider eliminating or cutting back on your most expensive hobby or try saving the mortgage amount each month for six months and see how it goes.
4. You have been at your job for two or more years.
Most lenders like to see someone with a stable income for at least 24 months and will calculate your mortgage on those two years of income. Keep in mind that the monthly costs of owning a house don’t stop with the mortgage. You will be paying PITI (Principal, Interest, Taxes and Insurance) on top of that mortgage. Taxes will vary from year to year depending on the value of the house and where its located, but WalletHub states that the average U.S. homeowner pays about $2,000 a year. Homeowners insurance averages out to about $1,000 annually, but that also can vary.
5. You have good credit history.
If you have no record of late payments, defaults on loans or a bankruptcy lurking in your past, or at least not within the last year or two, then you are probably in good standing. Lenders prefer to see a dull report, but they also know that life (and the 2008 economic downturn) happens. If there are unresolved issues, then take care of them now. Some issues can take upwards of six months to get squared away, but that may not be so bad. That gives you time to save and may put you on the hunt during the off season when competition won’t be so steep.
6. You know what kind of home you want.
You have sat down with your family and/or a financial adviser and gone over various options. Perhaps a single-family home is ideal for your situation, but it could be that a duplex might be even better. You live on one side and rent out the other to help cover mortgage costs. A condo might suit your stage of life, especially if you travel quite a bit or are looking to downsize after owning a single-family home. Households fluctuate in size over time as children are born or move out or even return! Knowing what you want in a home and what best suits whatever point in life you are at will help your agent narrow the field of selection.
7. You are ready to stay put for seven to ten years.
This may sound like an eternity, but a home is a big investment. Many experts now recommend planning to sit tight for seven to ten years to recoup the costs of purchasing it and to build up some equity. It also means you are choosing a location that you will be happy in for a relatively long time. Undoubtedly, people change jobs, get transferred, or move to be closer to family; however, if none of these things appear to be on the near horizon, then you may be ready to commit. (Let me just say, too, that Columbus, Ohio is a great place to commit to!)
Being ready to buy a home is a tall order to fill, so don’t despair if you can’t put a check mark next to every item on the list. Zillow estimates most people pay an extra $15,000 a year in additional costs. It adds up quickly, so be prepared financially. Set a goal to earn and save while working on what kind of home is best for you and where you want to settle. The buyers I have worked with who did this have found themselves in a good position when we started looking for a new home together.
Have questions on how to get started? Get in touch and see how Pure Equity Group can help!
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