"Nothing Could Be Finer"



5 Signs you Shouldn't Buy a Home

Posted by Jeff & Joni Finer

Buying a home is one of the biggest financial decisions you will make. When you are ready to purchase a home, it can be a great experience. But if you make the commitment before you are truly ready, you may find yourself in a situation you may regret.


Here are 5 signs that you are not ready to buy a home right now:


1.    You haven’t looked at your credit report or you have a credit score of less than 620.


Have you viewed your credit report in the last year? Some people have errors on their credit reports that they don’t notice for years, which can affect your credit score greatly. Correcting errors on a credit report and/or improving your credit score can take some time. View your credit report before you even start searching for a home to give you an idea of your score and creditworthiness for a mortgage. You can receive a free credit report each year from AnnualCreditReport.com (link). This resource won’t give you your credit score but will give you an idea of what your report contains and if there are any errors.


If you obtain your credit score and it is below 620, you may find it difficult to receive financing for a home loan. Also, the higher your credit score, the better interest rate you’ll get.


2.    You don’t have a budget.

If you want to buy a home, you need to know how much you can afford each month. That means you need to know how much you spend each month on both fixed and variable expenses. Before beginning the homebuying process, you should create and monitor your budget for at least three months to get an idea of how much you can comfortably afford.


3.    You have little to no savings.


Along with a down payment and closing costs, there are other costs associated with purchasing a home. Research what out-of-pocket costs you might incur. When looking for a home, don’t choose a fixer-upper unless you either have the funds to fix it up or can live in it while saving the money to fix it up. As a homeowner, you often have unexpected costs associated with owning a home that you don’t have when you’re renting. Ensure that you have a safety net to cover planned as well as unplanned expenses or emergencies. To determine how much you’ll need, prepare to have at least 5% for a down payment, enough to cover closing costs, and enough for a year’s worth of maintenance, and several months of mortgage payments.


4.    You have a lot of debt.

If you have a large amount of student loan debt, credit card debt, a large car payment, collections accounts, or medical bills, adding a mortgage payment will only make things worse. Your debt-to-income ratio will help you determine if you are really ready to purchase a home. Your debt-to-income ratio is the percentage of your monthly gross income that goes toward paying debts. A debt-to-incoming ratio of 36% or less is generally considered manageable. Consider paying your debts down significantly before committing to a home.


5.You are uncertain about how long you will stay in your home.


It usually takes years to see any kind of return on your investment when you purchase a home because most of your initial payments go toward paying off interest. If you purchase a home then sell it within a few years, you’ll most likely see little, if any, financial benefit. If you’re not sure whether or not you can stay in your home for a few years, you may want to wait until you have a better long-term plan.


Copyright: Pinnacle Estate Properties