Is home ownership right for you?

Is home ownership right for you?

Home ownership is a common goal among most American consumers. It is the biggest financial decision that most people will ever make, and could turn out to be the biggest mistake if the timing and conditions are not right.

Is purchasing a home right for you? The following are two simple questions you should keep in mind when making this all-important decision:

Am I ready to own a house?
Will the bank or lender think I’m ready to own a house?

Are you ready?

Can you comfortably afford to make payments on a house for the next 30 years? Generally speaking “comfortably afford” means a house that is equal to two-and-one-half times your annual salary. But it’s not only the mortgage payment, it’s all of the other things that are included in home ownership. As a renter, you may not be aware of all of the extra expenses and responsibilities that come with owning a home. This is a big decision and you definitely should take time to consider all aspects.

Time. If you do not plan on staying in this house for at least the next five years, then you should forget about buying at this time. With the tremendous fees involved in buying and selling a home, it’s not worth it to buy and then take off in a few years. Are you likely to be transferred from your job in a few years? Are you planning to go back to school any time soon? Do you foresee your income decreasing anytime soon? These are questions you must honestly ask yourself before deciding.

Will the bank or lender agree that you’re ready?

Lenders are much more selective with mortgages than other types of loans. There is a lot of money at stake and lenders want to be sure they are going to get paid back. There are three basic things taken into consideration: income, credit worthiness, and collateral.

Income. Can you show the bank you have enough money coming in for the next thirty years to make your payments? A few things the bank will take into consideration are how long you’ve had your job, how much of your monthly income goes toward other debts, how much you can put down as a down payment. Check stubs, bank account statements and tax forms will be required to show proof of your ability to make your mortgage payments.

Worthiness. The bank will look at your credit report, so you’ll want to make sure it’s in the best shape possible. They want to see that you have a good track record of making your payments on time. They also want to know how much debt you already have which gives them a better idea how likely you are to pay them back.

Collateral. Generally, the house itself will be considered the collateral for the loan. If you can’t afford to make your payments, the bank or lending institution will come and repossess your house.
Mortgages are serious; they don’t leave much room for compromise. Please be honest with yourself when analyzing your readiness. If you feel that you are ready, and you believe that the bank will think you are ready, then this may be the right time for you.

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