Are You Ready for Home Ownership? Four Ways to Know

Home ownership is certainly a worthy goal. But that doesn’t mean it will be obvious when the time is right. If home ownership is something you’re working toward, how will you know when you’re really ready? Consider these four ways to know if you’re well prepared to take the plunge and buy your first home.

1. You Have an Emergency Fund — Being a home owner means having an emergency fund in place. When you rent a home, your landlord is responsible for emergency home repairs, along with maintenance and upgrades to the property. However, after you buy a home, you are in charge of paying for these expenses yourself. A homeowner without an emergency fund could likely end up relying on credit cards to pay for any surprise expenses. (Imagine a broken water heater, busted pipes, or roof repairs). To be sure, start saving toward an emergency fund before you buy a home so you don’t go into debt when repairs pop up.
2. You’ve Considered the Down Payment — It’s no longer a hard and fast rule that you need to save 20% before you can buy a home. In today’s mortgage environment, you can buy a home with as little as a 3% down. You’ll want to consider your area’s home appreciation rate and compare that to the cost of mortgage insurance. Home appreciation is the increase in your home’s value over time and, in some cases, can be as high as 7–10%. Mortgage Insurance is required if you don’t have a 20% down payment, and can add $100–$200 to your monthly mortgage payment. A home purchase is often the biggest single investment you’ll ever make, so you’ll want to carefully consider the home appreciation rate and how that can improve your financial future.
3. You’ve Been Prequalified — Before you begin touring homes for sale, it’s important to sit down with a mortgage lender to determine how much you can afford. After all, there’s nothing worse than falling in love with a house you don’t qualify for. A prequalification letter will state how much the lender thinks you can borrow, based on your desired monthly payment, personal credit history, income, and assets. These letters can help speed up the home-buying process because it shows the seller that you’re serious about purchasing the home and prepared with the financing you need.
4. You’ve Had a Reality Check — Many first-time home buyers go into the process assuming they’ll be able to have everything on their wish list, but that’s just not always the case. Sometimes a hard reality check is needed for you to be sure now is the right time to buy. Consult a qualified real estate agent, who can help you get the home you want at a fair price. Find an agent you can rely on to give you an honest reality check, preferably one who has been recommended by friends or colleagues.

Ultimately, if you’re aware of your finances, have an emergency fund, and have a substantial down payment at the ready, you could be closer to home ownership than you think.