Homeownership: Is It Right For You?

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With interest rates at low levels, perhaps, you may be thinking now is the time for you to buy your dream home. Buying a home is a big step, takes lots of preparation, and is likely the most expensive purchase you will make. It is important to not only understand what it means to buy a home, but also what it means to be a homeowner. According to the U.S. Census Bureau, the homeownership rate in the United States, which is the percentage of homes owned by their occupants, dropped to 64.4%, as of the fourth quarter 2014. This is the lowest rate in two decades.

After the most recent recession and housing crisis, many people are thinking differently and choosing to rent instead of own. Depending on where you live, your lifestyle and plans for the next few years, renting could be better for you. Both renting and home ownership are fine choices if you run the numbers for your particular situation.

Here are 7 steps you should consider before purchasing a home:

  1. Determine if homeownership is right for you.

If you have a desire to own your home, plan to stay in it for many years, have a decent down payment, and don’t mind fixing the sink when it breaks, then buying a home may be for you. On the other hand, if you want flexibility to, or plan to move in a few years, can’t afford the mortgage payment and associated costs, pay very low rent, or just don’t want the hassle of maintenance, renting is a viable option for you.

There are a lot of responsibilities that come with homeownership. And, only you will know when the time is right for you. When you are ready to buy a home, look for a house that doesn’t just fit this stage of your life, but one that would also fit your needs five years from now.

  1. Strengthen your credit score

The truth is that getting a mortgage today requires a stronger credit history than in the past. The lender wants to ensure that you demonstrate the ability to repay your loan obligation. A higher credit score not only helps you qualify for a loan, but also helps you get a lower interest rate, which, in turn, lowers your monthly mortgage payment. But, if you have some blemishes on your credit report, don’t worry. The good news is that you can improve your credit over time. Follow these tips and you’re on your way to a better credit score:

  • Always pay your bills on time,
  • Pay at least the minimum amount required,
  • Review your credit report and correct any errors,
  • Keep your debt-to-income ratio low, below 30 percent, and
  • Don’t max out on your credit cards.

Get your financial house in order

If you have debt, reduce it as much as you can prior to buying a home. Americans carry excessive debt, which indicates that they are overspending or, perhaps, they have a ton of student loan debt, or both. Lenders typically want to see your debt-to-income ratio smaller than 36%. Your debt-to-income ratio takes an important view of your financial situation and is one of the ways lenders measure your ability to manage the payments you make every month to repay the money you have borrowed. This is an important ratio because evidence from studies of mortgage loans suggests that borrowers with a higher debt-to-income ratio are more likely to run into trouble making monthly payments. Be sure to make reducing your debt a priority.

  1. Save, save, save

There are many costs associated with buying and maintaining a home. Save as much as you can for your down payment, closing costs, emergency fund and your move-in fund. If you don’t already have a down payment saved, start saving now. The bigger the down payment the less your monthly mortgage payment will be. A healthy savings account is critical for homeowners as you are responsible for those unexpected costs that are sure to arise.

  1. Get pre-approved

Before you begin to look for a home have your pre-approval letter in hand. A pre-approval is based on your specific financial situation, and takes the mystery out of what you can afford. It will help you to look for a house that is within your price range. A pre-approval letter also tells the seller that you are serious about purchasing a home and that will give you more negotiating power when you find a house you like. Therefore, if you end up bidding on the same house as another buyer, your pre-approval letter might even be the deciding factor in getting your offer accepted.

  1. Choose a real-estate agent

Once you have determined how much you can really spend and are preapproved you should find a good real estate agent. Be sure to work with someone you are comfortable with and that is able, and willing, to work to find the property you desire. According to the 2014 Profile of Home Buyers and Sellers by the National Association of Realtors, 88% of buyers purchased their home through a real estate agent or broker. One of the best ways to choose a real estate agent is to ask your family and friends for a referral.

  1. Buy a home

And finally, buy a home you like! Be sure to look at the quality of the neighborhood, schools and its convenience to your job, family, friends, and shopping! And although you may not get everything you want or need in your new home, you are going to live in it and it should make you happy.

Maya Angelou once said “the ache for home lives in all of us, the safe place where we can go as we are and not be questioned”.  The choice is yours – to buy or rent.




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