Are you Ready for your First Home?

By: Martin Lukac

Owning a home is a large responsibility. You are now responsible for a property. There are many associated costs and hassles that come with your first home. How do you know if you are really ready?

While your finances may look good enough on paper, that really isn't the main indication of whether or not you are able to purchase a home. Lenders will evaluate your finances in a different way than you do. More often than not, they will say you can afford more than you can.

Before you start looking for a house, you need to see if you are really ready.

Start by reviewing your finances. Look at your monthly budget. Does it work? Are you stretching to make your rent payments? If you are, you probably won't want a larger mortgage payment. Look at what you really spend to see how much you can afford.

Calculate your debt to income ratio. All lenders look at this. This is the amount of monthly debt payments you make in relation to your monthly income. The lower your debt, the better you look to a lender.

You will also need to know your net worth. It tells you if your assets exceed your liabilities. Hopefully, they do.

If you aren't already checking your credit report on a regular basis, you should obtain a copy of your report from each of the three credit bureaus. There will be a small fee for your credit scores, but it is worth it to know where you rank. If you find something false in your credit report, you should take immediate steps to have it resolved. Remember, late payments and missed payments will affect your credit score drastically. If you have a hard time meeting your obligations, it probably isn't a good time to purchase your first home.

You may be able to find a lender that will approve you for a mortgage despite your poor credit -- but you will pay higher interest rates in return. A mortgage is a long-term loan. Over the years, even a small difference in an interest rate can add up to a large amount of interest payment.

When reviewing your finances, ask yourself a few questions:

Do you have the money for your closing costs, downpayment and moving expenses?

Do you know what homeownership costs? Will you have enough money to pay the mortgage, utilities, property insurance, taxes, maintenance, repairs, lawn services, etc.? The overlooked costs can add up rather quickly.

Is your income steady and reliable? You don't want to have a new mortgage and no way to pay it.
Are you in control of your spending? You want to have minimal credit card debt. If you are financially responsible, you are able to follow a written budget and save for you goals.
Do you have enough life insurance to cover both the mortgage and household expenses? This is something you should definitely revue before you close on a property.

A home takes a lot of responsibility. You are no longer able to just pick up and move with little notice. You are taking on a large investment when you purchase your first home. Make sure you are ready.

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