Buy your first home In Utah – Buying a house for the first time is a huge milestone in anyone’s life. And while we’ve gone over some of the steps involved in buying a house for the first time before, it is first importune to make sure you’re ready for this purchase. To that point, we’re going to cover a few of the most crucial things to keep an eye out for and address….
1. You already have a debt repayment plan
Ideally, your debt has been cleared before you can purchase a home. But that’s not usually the case for first-time homebuyers who still have student loans, car loans, and other types of debt. If you already have effective debt management strategies in place, then you can definitely move forward with homeownership. That means you’re not constantly trying to catch up with bad debt such as credit card debt, or living way beyond your means. You should also have a budget you’re able to stick to given that mortgage is another expense that will factor into your monthly income.
2. You have a good credit score
With some variance, credit scores at or above 700 are generally considered good. Aim to reach this range to gain favorable mortgage rates, which you can do by paying your bills on time and keeping your debt low. While it might sound counterintuitive, owning a credit card and using it regularly is one way to improve your credit score fast. Mortgage brokers use your ability and timeliness in paying credit card bills as a sign of reliability.
3. You can pay the down payment and other closing costs
The general rule of thumb with buy your first home is to be able to afford the down payment and closing costs at the very least. If you don’t have that cash on hand, you have various options in the personal loan space –– but it is also not uncommon to borrow from your own retirement plan. A 401(k) loan can be obtained quickly and basically amounts to borrowing funds from your own plan, with any interest in repayments simply going back into said plan. The other option is to withdraw money from your 401(k) –– though this option can be age-restricted (no withdrawals before age 59.5), and there can be a fee for drawing money out early.
4. You have a stable income
Another golden rule, this time with mortgages, is that it shouldn’t account for more than one-third of your combined household income. If your monthly mortgage payments exceed that threshold, you might be stretching yourselves out too thin with limited finances. It also goes without saying that having a steady paycheck is a must before you can even consider buying real estate.
5. You have a sound investment portfolio
Having a strong investment portfolio is not essential to buying a house in a direct sense. However, because a new home is a lasting, long-term investment it can be more difficult to put money away for investment once you’re saddled with home payments. On the other hand, if you’re able to put some spare income or savings aside in a strategically run brokerage account before you sign for a new home, you’ll have given that money a chance to grow. The right account will let you spread your assets out in a diversified manner so that you build wealth even if you cannot put much more aside in the coming months and years, when –– presumably –– you’ll be making at least semi-regular payments on your new home.
6. You have a healthy emergency fund
Aside from a stable income, it’s ideal to head into homeownership with a fully funded emergency savings account. Generally, experts recommend having 6-12 months’ worth of expenses in the bank in a separate account to your regular savings. An emergency fund has become especially crucial in recent times, with homeowners resorting to mortgage deferrals during a time of mass layoffs and economic decline in much of the western world. Your emergency fund should contain enough to cover the cost of your mortgage for several months in case you’re unable to pay for it due to unforeseen circumstances. Otherwise, you may end up defaulting and losing your home.
7. You don’t have any major expenses in the near future
Houses are not cheap and so purchasing one should be timed properly. If you have any major expenses down the road, you should probably consider delaying homeownership — or at least weighing out your options. For example, millennials are saving for a home instead of splurging on their dream wedding. This is completely up to you but you should definitely evaluate what is more important at this point in your life before canvassing for real estate.
8. You are ready to settle down
Finally, decide whether you are truly ready to settle down. If you have plans to relocate in the near future, then it might not be the right time to put a downpayment on your dream home. It might not be a lifetime commitment but it is definitely a decision you have to stick with for the long-term.
If you answered yes to all of the above, congratulations! You may well be ready to buy your first home.