Rebekah, Author at Personal Capital

KEY POINTS Be as truthful and realistic as possible when it comes to buying a new home or saving for retirement. Hit a few open houses to familiarized yourself with prices in the area. Be aware of real estate trends both nationally and locally. Are you fed up with renting and long for a place of your own? Even if you want to buy a house, sometimes it doesn’t make financial sense. Deciding to buy property isn’t something to take lightly or rush into. A home is likely going to be the most expensive purchase you’ll make in your lifetime, after all. And like it or not, sometimes renting is the better choice. Deciding If You’re Ready To Be A Homeowner So how do you know? If you want to determine whether you’re ready to own a home versus rent, there are several important questions to mull over. This isn’t a time to embellish – be as truthful and realistic as possible. You don’t want your head to be stuck in the clouds when you’re making one of the biggest financial decisions in your lifetime, so take this opportunity to honestly evaluate the questions below. If you answer “yes” to the following, it might be a good idea to keep renting. Get all of your ducks in a row before you jump into the real estate game. 1. Have you neglected maxing out your retirement fund or setting savings goals? If your cash flow is restricted right now, purchasing a home is more trouble than it’s worth. Instead of shopping for a house, put your energy towards reaching smaller key financial goals first. Start by building a three to six month emergency fund that will cover basics like rent, car payments and recurring monthly expenses should you be out of work for any period of time. Then beef up your retirement savings, and max out your 401k or IRA account every month if you can. Once you’ve got a handle on the basics, cut out unnecessary expenses. Then you can start saving aggressively for a down payment. 2. Are you unsure of what you can afford? Get to know your local property market. Browse real estate listings to get a feel for what a practical home versus a dream house might cost. Hit up a few open houses to familiarize yourself with prices in your area. Remember, where you live can have a significant impact on what you can afford to buy, especially if you’re in hot markets, like California. Take a look at the Housing Affordability Index chart below (which shows the percentage of people in a given area who can afford paying the median price for a home) highlighting major cities in California versus the U.S. average. Many people in California are simply priced out, so if you’re considering property in this competitive region it’s all the more important you know what you an actually afford. As seen in the chart above, only 11 percent of San Francisco residents can afford the median local home price (which is $1,115,700 ). On the contrary, the U.S. median sales price (below) for new houses is considerably lower at $301,400. 3. Are you restless at work? Job security isn’t what it used to be and many people change jobs every few years. Is your employer downsizing and going through layoffs? Are you unhappy at work and eager to find a new job? The more unknown variables there are in your career, the riskier it is to purchase property. If you anticipate switching departments, transferring to a new office or finding a new job in the short-term, renting provides much more flexibility. 4. Does your relationship feel strained? If you’re going through some rough patches with your spouse or significant other, focus on fixing your relationship first before buying a property together. Don’t overcomplicate things by throwing a housing search into the mix – it’s a lot to take on. With a life change as big as buying property, it’s important to be on solid ground with your spouse. 5. Have you recently separated? If you recently became separated, divorced or widowed, stop and take time to heal before you throw yourself into househunting. You may feel pressure to jump into the property market right away, but it can wait. Adjust to your lifestyle changes and analyze the impacts that living alone will have on your finances. Affording a property on your own may be more than you can handle in the short term. You Could Be Ready To Buy Property If… Answered “no” to all of the above so far? Then consider taking the plunge into buying your first property if you can answer “yes” to these questions: 1. Do you have a solid grasp on your finances? If you are confident about your financial situation, way to go! Aim to have sufficient funds to afford a 20 percent down payment. And don’t forget about fees. If you get a loan, common fees you may owe include appraisal fees, origination fees, pre-paid insurance, credit report fees, recording fees, bank processing fees, title insurance, etc. Sellers typically pay the agent commissions of 5 to 6 percent too, but sometimes a portion of that cost could be passed on to the buyer depending on the contract. Be sure you understand everything that you’re paying for. 2. Do you have a strong credit score? When you apply for a mortgage, two critical things underwriters analyze are your credit score and your debt to income ratio. If your numbers are in bad shape, you may not qualify for a loan. Generally, high credit scores above 720 are eligible for the best mortgage rates. Although there is no minimum score to get a loan, most lenders want to see a credit score above 660. 3. Is your debt under control? To calculate your debt-to-income ratio, take the sum of your monthly debt payments and divide them by your gross monthly income. In order to get a qualified mortgage, you typically need a debt-to-income ratio of 43 percent or less. 4. Are you fascinated by real estate and the direction of the markets? The more knowledgeable you are about real estate, the better your investment is likely to be. It’s important to be aware of real estate trends both nationally and locally. Don’t rely on an agent alone to get informed. Do your own research and follow the markets. Monitoring the Federal Reserve’s actions on monetary policy and raising interest rates is also helpful if you plan to get a mortgage or refinance. 5. Are you ready to stay in one place? A home is an illiquid asset, so if your goal is to make quick cash it’s unlikely that a house is your best investment vehicle. When shopping for a house, think hard about how long you’re ready to stick around. The longer time horizon you have to live in a property, the better. That means thinking about how much room you’ll need for kids down the line, proximity to schools, and if you’ll be working in the area for the foreseeable future. And if you aren’t quite certain you want to live in a particular neighborhood or city, spend as much time there as possible. Get the scoop on your potential new neighbors, review local crime reports, look at ratings for schools and check out nearby stores and restaurants. 6. Are you a do-it-yourselfer? One thing I learned very quickly as a homeowner is things tend to break when you least expect them to! If you like DIY projects, there should be plenty to keep you busy as a homeowner ,and the savings add up. I saved over $150 by fixing a leaky toilet on my own instead of calling a plumber. How did I manage that with no prior experience? Youtube videos and the friendly sales people at my local hardware store of course! Take Control Of Your Finances Eager to learn more about your financial health before diving into the real estate market? Review your net worth using Personal Capital’s free tools that allow you to see all of your financial accounts (bank accounts, student loans, credit cards, investments, etc.) in one place. Further Reading: Spring Is Open House Season How To Buy A Home In A Cash Buyer Market What Is A Reverse Mortgage And Is It Right For You (or Mom and Dad)? Is It Finally Time to Upgrade Your Home?

Rebekah

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