For most people, the investment in a property is the largest purchase they'll ever make. When it comes to getting into debt, it doesn't get much bigger than the mortgage on a home.
Before you fall in love with your very first house, it's wise to consider the outlay and if this is the right choice for you. Buying property is a significant legal and financial commitment, and you need to be sure you're ready. Here are some top ways to tell if you're in the right position to move ahead or not.
Your Finances are Solid Enough
One of the most significant factors involved in buying your first property is always finances. To purchase a place, you need enough savings to afford a deposit and the closing costs that come with the transaction, as well as all the ongoing mortgage repayments and maintenance and repairs, etc.
Some loan options allow for smaller deposits. However, once costs such as bank fees, appraisal fees, title insurance, and other things are added in, the minimum needed is usually five percent of the transaction amount. This percentage equates to many thousands of dollars. When you have a small deposit, under 20 percent, you'll generally have to pay for private mortgage insurance, too, which brings the total higher. Also, the smaller your deposit, the larger your mortgage repayments.
When deciding if they can buy or not, many people forget to include insurance and warranty in their calculations. As a homeowner, you'll want to insure the building, at least, plus also potentially cover the appliances and other fittings and fixtures, so if repairs and replacements are needed, you won't have to fork out so much money at once.
Read up about home warranty vs. home insurance to discover how this kind of cover works and what it can include. Plus, if you're going to need to make renovations or additions to the property to make it suit your requirements, include these costs into your numbers when evaluating your ability to afford a home. It's also wise to have additional savings on hand before you commit so that if something happens, such as a job loss or ill health, you still have funds to pay your mortgage until you can get back on your feet.
Access to a Mortgage
You may believe you have enough money and security to afford your own property, but that doesn't mean lenders will see things the same way. Unless you've saved up to purchase a home outright, which is rare, you'll need to get a loan from a bank or other financial institution.
The deposit you have is one factor that these organizations examine when deciding whether to approve or deny an application, but it's not the only one. Lenders also want to see that you have a good credit rating, can be relied upon to make repayments promptly month after month, and have a source of income that shouldn't dry up anytime soon.
Financial institutions also have to see if they feel comfortable loaning you money to buy the particular property you're interested in. Sometimes borrowers are seen as a reasonable risk, but organizations don't think that the home they want is worth the sales price or have other issues with it.
Don't assume you'll get your preferred loan or any loan at all. To give yourself a better chance, though, check your credit report for inaccuracies in case any mistakes have been made, and improve your score by paying down debts if needed. It's also wise to see if you can get prequalified for a loan so you're clear about how much you can spend on a property and are ready to jump on it once you find it.
You Don't Mind a Long-Term Commitment and Homeowner Responsibilities
Another component of being ready to buy a property is understanding that it's a long-term commitment. Houses aren't something you can sell at the drop of a hat; they're not liquid assets. When you buy a home, you'll want to be able to live in it yourself for at least a few years or be willing to rent it out and financially handle any income shortfalls.
Make sure you're ready for the responsibilities that come with being a homeowner, too. For example, there's all the paperwork involved, not just when you buy and sell but also as far as mortgage and tax documents go. Don't forget maintenance, repair, and other upkeep jobs you'll have to sort out, plus potential gardening duties, amongst other things.
The more you understand everything involved in buying and owning a property, the more comfortable you'll be in deciding when you're ready to get on the property ladder. Don't rush the process, and give yourself the best chance of financial success.
