Your home should be your castle. Don't let it become your financial prison.
I stole those words from some folks down the hall at USAA, but imitation is the best form of flattery, right? In any case, the phrase highlights the need for finances to be at the forefront when you embark on what can be the very emotional journey of putting a roof over your head.
Here, I'm exploring the idea that the right time to make a financial move hinges, in large part, on whether you can make it in a responsible way. That's especially important in today's volatile and increasingly expensive real estate market.
Here are a few checklist items that could indicate whether you're ready to purchase your home the right way:
Your ducks (the credit ones) are in a row. That means you have checked your credit score, eliminated as much debt as possible and avoided applying for new credit for several months. You are now ready to take on what will likely be your biggest financial obligation.
You crunched the numbers, and the home fits in your budget. If you can cap your mortgage payment at 28% of your gross monthly income, you should be on track -- although that number could fluctuate given your location and financial situation. The total should include principal and interest plus property taxes and homeowners insurance. Beyond that, you've got to budget for homeowners association dues, maintenance and the like. If you're trying to keep your options open, spending less on the biggest line item of your budget is not a bad thing.
You're determined not to bite off more than you can chew. Just because someone will lend you money doesn't mean you have to borrow it. Your lender should not tell you how much you can afford. Period. That's something you need to know before you begin the home buying process.
You're hunkered down for the long haul. At an absolute minimum, you've got to be committed to homeownership for three years -- and longer is better. Remember, it could cost 10% to 15% of your home's value to buy and sell. That doesn't mean you have to live in the home; you just need to be prepared to own it for an extended period. If a slow housing market or an unexpected permanent change-of-station move will make you a reluctant landlord, you may want to reconsider buying now.
You're sitting on cash. Yes, you need cash to buy a home, even if you're getting a Department of Veterans Affairs loan with no down payment. You could need money for closing costs, furnishings or maintenance. Heck, I've had to fix my roof, replace broken appliances and repair the air conditioning -- all in a relatively new house.
If you're looking to purchase your next home, make the decision in a way that the windows of your palace won't feel like they're covered with bars.
Take the Next Step
If you're ready to move forward, or just want more information, the first step is to get no-obligation rate quotes.