Most people dream of owning their own home and it’s usually a main goal in their life. Buying your own home is also known to be a large financial landmark in your life. Although many people dream of owning their own home someday, it’s not for everyone.
Making such a substantial decision in your life is never easy and should be taken very seriously. Homes sell for thousands of dollars and since it is very unlikely that you will be able to buy a $200,000 home outright, you will need a mortgage. A mortgage is a loan specifically for buying a home. It is a massive obligation to pay such a large amount of money back and takes a long period of time.
Although many people want a home to feel comfortable and have more stability in their lives, you must think it over and make a well thought out plans in order to not fall into debt. There are multiple ways to know if you are ready for a mortgage.
Credit Card Debt:
If you are one of the many people in the world today that are overloaded with debt, then there are people who can help you plan to pay it off. There is also a great amount of information that can be researched to learn different techniques to try on your own. Budgeting and cutting unnecessary costs is a must for those who are working on getting out of debt. In order to be able to add on more financial obligations it is dire that you make sure that your current obligations are up to date or completely paid off.
Too Much Debt:
If you already owe money to creditors and are having a difficult time making payments, this is a sign that you can’t afford a mortgage. You need to be able to make monthly payments to mortgage companies. Missing payments on a mortgage will have negative consequences. Having debt before deciding to buy a home will hinder the outcome of your decision. If you take on too much at once you could owe more than you ever thought possible. This could have terrible affects including bankruptcy if it got that bad.
It is important to make sure that most or all of your debt is paid off before buying a home. Having debt doesn’t mean that you will never be able to own a home, but it does mean that you should take your time to become financially independent before making such a significant financial decision. Another advantage to paying off debt before getting a mortgage is you may be able to get lower interest rates. Also if something comes up and you are struggling you won’t have multiple debts to pay.
You may not need to get rid of all of your debt to be able to manage a mortgage. However, struggling while trying to decide on buying a home shows that you are not stable enough to handle a mortgage.
Rent is Like a Mortgage:
For many people, mortgage actually costs more than rent. If you are currently renting a home and you are seriously struggling to pay rent on time, this is a red flag that you are not ready for a mortgage. When renting a house or apartment, you often don’t have to pay for damage or repairs. When you own your own home these unexpected expenses need to be factored in. There is also the cost of utilities among other bills such as internet and cable that may already be factored into the rent that you pay.
However, there are exceptions, such as if you want to buy a home in an area where they are currently selling in relation to rent costs. Here is an exercise that may help decide if you’re ready for a mortgage:
- Add costs of ownership, mortgage interest, maintenance, taxes, insurance, and make a monthly estimate
- Figure the difference between rent and mortgage payments
- Every month for six months save the amount of the difference in a high interest savings account
- If you are continuously taking money out of your savings for your mortgage, you are not ready for a mortgage
Not Sure How Long You’ll Stay:
If you are a fan of travel and you don’t like to stay in one place for a long time then it may not be a great idea for you to invest in buying a home. If you only plan to stay for a few years and don’t plan to use your newly bought home to rent out and earn an income then it would be a good idea to stick to renting.
Buying a home is not for everyone, as in heavy travelers or those who owe other creditors a large amount of money. Making this decision needs to be well thought out and planned. Other debts should be paid before investing in a home and all options should be researched and thought through.