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Maybe you’ve finished college and landed that well-paying job. Or perhaps you’ve gotten married and started a family. The next step in the adulting process must be to buy a home, right? While homeownership has long been a cornerstone of the American dream and a means toward building wealth and confidence, it’s a big responsibility and requires planning and preparation.
Ask yourself the following questions
If you’ve already settled on your home sweet hometown and planted roots (making friends, loving your job, settling on a favorite taco place), does that mean it’s time for a permanent address, too?
Hold that thought for a minute to work through these questions. Let’s see if you are ready to make your next move toward homeownership:
- Are you planning to live in the home for at least three or four years?
- Is your credit score in good shape to secure a competitive interest rate?
- Is your job or income source secure and stable?
- What other debt obligations, like credit card bills or student loans, do you have?
- Have you saved up enough to cover your monthly payments, as well as closing costs, insurance, taxes and more?
When you’re only a few years into your career, the flexibility that renting provides may be more valuable than a permanent address. You could be cutting your career growth short if you’re not as willing to take a job transfer for a giant raise because you don’t want to sell or rent out your house.
Four tips to keep in mind while preparing for homeownership
- Use renting as a time to get control of your finances and practice for homeownership. Renting is a great time to make sure you can handle the costs of living on your own, from paying bills to juggling rent payments with other obligations. Renting gives you flexibility and can make it easier to get the rest of your financial house in order.
- Factor in costs beyond the sticker price. When purchasing a home, of course you’ll need to save up for a down payment and make sure you can afford your mortgage payments—aim to spend no more than 30 percent of your monthly income toward your housing. But don’t forget there are other costs associated with buying and owning a home, such as closing costs, lawyer fees, property taxes, HOA fees, insurance and more.
- Evaluate whether you’re up for handling your own maintenance requests. As a renter, you have the benefit of a landlord to manage maintenance. That’s not the case when it comes to owning a home, which can require constant upkeep—whether it’s replacing a fixture or repairing your heating system. Make sure you are ready to dive in and tackle—or pay a contractor for—these types of projects.
Challenge:Consider starting new savings accounts geared specifically toward covering future repair expenses, such as replacing a roof or an old washing machine, and keep your financial confidence account in good shape to help you cover any unexpected emergencies.
- It’s OK to wait. Ultimately, owning a home is a great way to build equity and a rewarding first step on the path to financial confidence. However, if you’re not ready for the financial and personal responsibilities of owning a home or if you simply enjoy the freedom of renting, the truly adult thing to do is to wait. Take your time and handle your homeownership plan on your own schedule.
- Before committing to homeownership, determine if you're likely to stay in one place for three or four years.
- Homeownership comes with costs that renting doesn’t have, such as mortgage, property taxes, insurance and maintenance.
- While owning a home can be a sound investment and a great way to build equity, renting gives you more flexibility, especially if you need some time to get your finances in top shape.
Challenge yourselfWhenever you’re ready to make the move to homeownership, you’ll likely need a mortgage. Keep reading: Learn about the different types of mortgages to consider.
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