Have you experienced house fever? House fever occurs when you cannot wait to buy a house. You might be newly married or a young single professional. You have friends and parents urging you to buy a house. They say things such as, “Why are you paying someone else’s mortgage? You are throwing your money away by renting.” Or a myriad of other things. As their words hit you, you become thinking as they do. You start catching house fever. You are anxious about getting into your first home.
A word of caution if you are in the throes of house fever, “DON”T DO IT!” Yes, I just shouted that to you because before you sign on the dotted line, I want you to stop and see if you can afford to buy your home. Here are a few questions you need to ask yourself, No, strike that instead, here are a few questions you must ask yourself and have the correct responses to them:
- Are you completely out-of-debt? If you still have credit card debt, car loans, student loans, or any other debt, do not buy a home. You cannot afford it.
- Do you have 20% saved for a down payment? Having 20% helps you qualify for the best loan terms. It avoids Private Mortgage Insurance (PMI), which will save you a ton of money in the long run. It will also help you have a lower monthly payment.
- Are you going to be staying in your home for five years or more? If not, don’t bother buying a home. You’ll end-up paying a large amount when you decide or have to sell before five years. You are going to have to pay around 10% of the sales price in selling costs, e.g. agent’s commission (6%), staging, closing costs, moving expenses, etc. Your home will not appreciate enough (go up in value) to keep up with the cost of inflation.
- Do you have your emergency fund fully-funded? This means eight to twelve months of living expenses saved up to cover you in case of a job loss or other unexpected event. If you don’t, don’t encumber yourself with a home. Remember, when you buy a home, you are responsible for its upkeep, repairs, and the replacement costs of appliances, roofs, air conditioning, hot water heaters, etc.
- Do you have a FICO score or VantageScore above 700? When you have a score lower than 700, you will be turned down for a mortgage loan or will be offered loans with a very high interest rate. Make sure you have paid-off your consumer debt, have kept out-of-debt, and managed credit wisely in order to increase your score.