Are you considering buying a new home?
If so, you’re not alone! In 2018, nearly 620,000 new houses were sold.
Sometimes, though, the question isn’t whether you want a home. It’s whether you can afford a home.
80 percent of millennial renters want to own a house or condo of their own someday—but aren’t sure they can afford it. When you consider that many banks require 20 percent down, that could mean years or decades before you’re able to afford your dream place.
Before making such a large purchase, know that you should be able to buy a home and still have money left over to support your basic needs, keep an emergency fund, and support your new house.
So, there are some crucial financial questions to ask yourself now, before you go ‘house poor.’ Without further ado, here they are.
1. Do I Have Too Much Debt?
A general rule of thumb when house hunting is to not buy a place that requires more than 30 percent of your monthly salary.
Anything beyond this is where you get into being ‘house poor.’ Suddenly, most of your income is going to the roof over your head with little left for basic needs, let alone savings or emergencies.
Make sure you’re not paying off too much debt every month—car payment, school loans, etc.
2. Do I Have a Consistent Career?
Not only do lenders want to know you’re a reliable employee, but that should be an essential consideration for you, too.
If you’ve been stable with one job for a few years or more, the odds are good you’ll be able to track your finances safely. If you jump from job to job, your funds will be too unreliable to budget correctly.
That question can also be answered when asking yourself how long you plan to stay in your current location.
3. Do I Have Enough Money in the Bank, Before and After Buying a New Home?
We mentioned that many lenders require at least 20 percent down before you buy a home.
Consider the cost of a down payment. If you wanted a home for $140,000, your down payment would likely be no less than $28,000 (although this number varies by lender). Do you have that in the bank?
You also want to be sure you have enough in the bank for the many closing costs, such as various taxes.
Additionally, this down payment shouldn’t wipe you out. Make sure you have money coming in after you’re sure you can afford a down payment and mortgage. You may be able to get a free quote for movers and the like, but the rest costs big bucks.
4. Why Do I Want to Buy?
Last, why do you want to buy a home?
Is it because you genuinely want one, and you can afford it? Or are you trying to fulfill some American dream you think you’re required to have? Will you regret your decision once you’re inside its four walls?
Mull over this essential question before pulling the trigger on a new home purchase.
Give Truthful Answers
Now that you know some of the most pressing questions that come with buying a new home, it’s time for some honest reflection.
Remember to look at this significant life decision wisely, as unbiased as possible. This is one decision you need to make with your head before your heart. Your heart can come into play after you’ve managed your finances—when it’s time to lay out your ‘must-haves’ and dealbreakers.
We’ve got more great real estate advice where this came from. Keep scrolling our page for more answers to all your important questions!