Buying a house is a large commitment to take on, regardless of whether this is your first house or third. So if you’ve been scoping out the homes in your area, and you’re unsure whether this is the right time, you’re not alone!
These are the top things to consider before you start looking at what’s on the market.
What Are Your Finances Like
Although you don’t have to have the full cost of a home saved up, having good financial health is a good step towards getting approved to buy a home. Do you have at least a couple thousand dollars in savings? Have you been working at the same job for multiple years? What’s your income look like?
Take the time to figure out how much you make every year and how much you can afford to spend on housing. Although the rule of thumb says to aim for a third of your income to go towards housing: it’s more reasonable for most people to aim for a quarter to avoid financial crises between paychecks.
How High Is Your Credit Score?
What’s your credit score? The average score in America is in the mid 600s, but that’s not good enough to get approved for a good interest rate at most financial institutions. So instead, if you’re wrestling with the question of ‘should I rent or buy a house,’ know that a credit score less than 700 likely won’t get you preferential rates. Accordingly, a good UK credit score counts when buying a home .
In the long term, even if you qualify for a loan, if your credit score isn’t in the 700s or higher, you may see your interest rates go through the roof. Although you’ll get your house in the short term, in the long term, you’ll be paying tens or hundreds of thousands of dollars more than you need to for that property.
If your score isn’t ideal, take a year or two more and rent while you work to build up your credit score. Then, pay off any debt you have, get a credit card that you pay off reliably, and pay attention to how much of your credit limit you use every month. This behavior will build your score while giving you time to save up money and be better prepared for home ownership.
What’s The Market Like In Your Area?
Are you aware of the existing value of the housing market in the area where you stay? Is it a buyers’ market, where houses are staying on the market for months, and you can bargain the price down to what you need, or is it a seller’s market where homes are flying off the market and erupting into budding wars?
You can buy a home in a seller’s market if you have to: but keep in mind that these houses may be selling at far above the price the home is valued at, and you may have to compete to get a place that doesn’t even suit your needs.
You may desperately want a home, but you have to be careful and avoid buying the wrong one just because you feel you need to own a home quickly.