According to the latest Standard & Poor’s/Case-Shiller home price index, home prices keep rising but homeownership is down.
This may be a blessing in disguise for many.
The real estate industry has done a great job persuading the American people that the American dream starts with home ownership. Hundreds of thousands of families have been, and continue to go through the pain and struggle of trying to not miss their next mortgage payment simply because they purchased a home prematurely.
So, how do you know if you are ready to purchase a home? Here are some points that you should consider before making the big purchase:
- Have 12 months of mortgage payments saved. Yes – that’s right, 12 months, not 3. It may sound high but it will prevent stress down the road and remember, the mortgage payment is only part of the battle; don’t forget to account for taxes, insurance, association dues, maintenance, etc.
- Know how much your taxes will be each year. It is important to know this before you make your purchase so you can properly account for how much you will be paying out each year. Taxes vary by state so be sure to do your research.
- Buying a home means you are the landlord. Owning a home makes you responsible for any and all upgrades, maintenance, unexpected fixes, etc, so be sure to have some extra cash saved to be prepared for the unexpected.
To simplify it even further, know how much you can afford, considering all of the before mentioned points, and to not go a dime over that price. This will ensure that you are not over extending yourself and reducing the possibility of falling behind on your payments or even foreclosure.
Remember, there is no reason to rush in to buying a home, even if you are getting married or starting a family. In today’s market, you can rent a home that fits your needs, in a good neighborhood with a good school district, without having a huge mortgage payment weighing you down. Especially for those families who are not sure if they will be staying put for at least 5 years.
Bottom line: rent until you are confidently ready to buy.
And lastly, lets all stop looking at home ownership as one of the best means to build equity. Instead, realize that purchasing a home is one of the greatest expenses most individuals will ever incur and therefore, individuals need to be prepared to take on such an expense.