Whether you’ve been renting for years or are ready to move out and live on your own for the first time, the prospect of buying a home is very exciting—and a little overwhelming. There are a variety of things to consider when determining if home ownership is the best next step for you.
Why buy rather than rent?
- It’s an investment: As opposed to rent, which goes straight into your landlord’s/building owner’s pocket, every mortgage payment you make gets you one step closer to owning a significant asset.
- It’s yours: An apartment belongs to someone else, so you can only change it so much. A home is yours to renovate and decorate as you please.
- It may boost your tax refund: You may be able to deduct mortgage interest and property taxes when you file. Consult your accountant to learn how.
- You may make money if you sell: While not guaranteed, there’s a high likelihood that your home’s value will increase over time, giving you a solid profit margin if you decide to sell.
Can you really afford to buy?
It’s not just about saving enough for a down payment; it’s about making those payments, month after month. You need to account for known—and potentially unknown—expenses or you may find yourself unable to manage the costs of a home. When determining your potential monthly budget, make sure to include mortgage payments, property taxes, homeowner’s insurance, utilities, and association fees (if any). You should also prepare for unknown expenses, which can include anything from a broken window to a new roof.
Want smaller monthly mortgage payments? The larger your down payment, the lower your mortgage payments will be! Get a better idea of how different down payment amounts can affect your overall purchase price and determine how much house you can afford.
Will a lender think so too?
Lenders look at what are called “The four Cs” when they determine whether or not to approve you for a mortgage—in what amount—and at what interest rate. The better you fare, the lower your interest rate—and vice versa.
- Capacity: Your ability to make present and future payments.
- Capital: Your cash, savings, investments, and other assets that could be sold for cash.
- Credit: How well you’ve managed bills and debt in the past indicated by your credit score and reports.
- Collateral: Other property or assets that can help secure the loan.
How can you get ready?
Buying a home is a huge step. Here are a few things you can do now to help you get ready:
- Set a monthly down payment savings goal.
- Put aside extra money for unexpected homeowner costs.
- Calculate your debt-to-income ratio and work to keep it under 43 percent (the highest most lenders accept to qualify for a mortgage).
- Know your rights: Familiarize yourself with The Truth in Lending Act and the Consumer Financial Protection Bureau.
Want to make sure home ownership is right for you, right now? Visit Suffolk Federal’s Financial Empowerment: Online Workshop, begin the Major Life Transactions module, and select Considering Home Ownership to learn more.