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Right now mortgage rates are the lowest they’ve been in over 50 years — you can find home loans near 4%, compared with over 12% in the late 1970s. Those low rates are tempting, but a low interest rate alone doesn’t make buying a home the right choice. If you don’t have a down payment or can’t afford the monthly payments, buying will likely cost you more than it’s worth. A home purchase makes sense only if you meet some basic criteria.
Consider buying if you meet these guidelines:
– Plan to live in the home for at least five years. Moving soon after buying can be costly — I moved two years after buying once and learned that the hard way (about a $25,000 lesson).
– Have a reasonable down payment. Twenty percent is ideal, though many buyers use lower-down-payment options like FHA loans. Smaller down payments can work if you have steady, well-paying employment.
– Keep total monthly debt payments, including the mortgage, under about 28% of your income. Add up all monthly debt payments and divide by your gross (or net) monthly income to check this.
– Have steady employment that is likely to continue.
– Maintain an emergency fund of at least three months’ living expenses in addition to your down payment.
– Be willing and able to handle maintenance and repairs — replacing appliances, fixing leaks, and general upkeep. If you’d rather call a landlord when something breaks, renting may suit you better.
Homeownership requires both financial and emotional readiness. For some people, renting and relying on public transit keeps life simpler and more flexible.
Housing costs on many coastal markets can be out of reach, and practices vary worldwide — in some countries buyers must pay cash, and in others you may only lease the land for a limited time.
If you decide to buy, be careful with mortgage insurance and plan wisely: make a detailed budget that includes a replacement fund for unexpected repairs, look thoroughly, negotiate hard, and have the home inspected before you commit.
We recently moved across the country and bought a short-sale condominium in an area that would have been unaffordable a few years ago. As with most of our previous homes, we bought a property priced below our maximum budget, and we hope to stay a long time.
Are you considering buying a home or condo next year?
