Your first home will be one of the most important and most valuable investments that you make. Home ownership is a goal of many Americans and ownership rates are now recovering as the economy grows. The current rate sits at 64.2%, a figure which approaches pre-2014 levels.
Housing markets are booming, and now is a great time to buy. Interest rates will rise throughout this year and into the next, so getting a mortgage as soon as possible will allow for some initial savings.
Here are some tips to help you decide whether you’re ready to start exploring the market.
Ready for your First Home?
You Have Cash Set Aside for a Down Payment
The ideal down payment for your first home (and a requirement for most lenders) is 20% of the total sale value. If home ownership is one of your key goals, then you’ll need to start saving for this down payment as early as possible. Although there are loans available with down payments below 20%, you will find that interest rates will be higher and the maximum loan offered will be lower.
Your Finances Are in Order (Both Long & Short Term)
Even if you’ve saved for the down payment, you’ll need to make sure that you have a consistent income with long term stability. Buying a home is a long term financial commitment with mortgage payments stretched out across 25 – 30 years, or even longer depending on your situation.
You need to be in a stable career with long term employment prospects.
You Have Good Credit Standing
Home loans are available for those with less than perfect credit, however, you will get the best mortgage rates when you have good credit standing. Delaying home buying for six months or a year could be a good option if you want to improve your credit score and get access to better mortgage rates.
You’re Committed to Home Ownership and Settling Down
This one is critically important, and it’s something that not every financial advisor will talk about. Even if you’re in the financial position to purchase your first home, you also need to be ready to commit to a single location and home ownership. Owning a home is more expensive than renting, with all repairs and maintenance being your responsibility. You will also be tied to a location and moving city or leaving the country can become more complicated when you have a mortgage to think about.
Your first home can become a solid investment that allows for future stability or even potential gains if you decide to sell in a few years’ time. Home values are gradually increasing as demand grows. Buying a home within the next 12 months could allow you to take advantage of current pricing conditions, as well as lower interest rates that won’t last long in America’s strengthening economy.
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