If you’re interested in buying a house, you’re probably thinking about purchase prices, monthly mortgage payments and closing costs. Those things are important, but there’s a lot more to consider. Before you take the plunge, look at all aspects of your finances to figure out if you’re truly ready to become a homeowner.
Consider Your Debt Load
Mortgage payments, utilities, homeowners insurance, maintenance and other home-related costs will eat up a large chunk of your monthly budget. If you’ve already got considerable credit card balances, auto or student loans, or other debts, you might find it hard to make ends meet. In that case, it will be better to pay off those debts, or at least reduce your balances, before you buy a house.
Think about debts that you might take on in the future. For instance, if your car is in pretty bad shape, you might need to take out a loan to buy a new one in the near future. Ask yourself if you would be able to handle that burden on top of housing costs.
Think About Retirement
If you’re not currently saving for retirement, or if you’re not investing as much as you would like, consider postponing a home purchase and funneling more money into your retirement account first. That will give you more time to benefit from compound interest.
Consider Your Kids’ Needs
If you have kids or plan to have children in the future, think about how current and future child-related expenses might impact your ability to afford a home. Food, clothing and childcare are expensive. You might also want to start saving for college when your kids are young, or possibly before they’re even born.
Make Sure You Have Enough in Your Emergency Fund
Everyone should have an emergency fund with enough money to cover at least a few months’ worth of living expenses. That’s even more critical if you own a house. You should have a sizable sum of money set aside in case you lose your job, you can’t work for medical reasons, your car breaks down, or the furnace needs to be replaced. If you don’t currently have a substantial emergency fund, focus on increasing your savings rate before you buy a house.
Check Your Credit
When you apply for a mortgage, lenders will consider several factors, including your credit scores, to decide whether to approve you for a loan and to set your interest rate. If you have shaky credit, work on paying off debts and making all your payments on time so you can boost your scores before you apply for a home loan. Raising your scores by a handful of points might save you thousands of dollars in interest.
Buy a House When the Time Is Right
Before you take on the responsibility of being a homeowner, make sure that you’re on solid financial ground. If you’re not, take the time to improve your circumstances before you start looking for your next home.
