If you’re considering buying your first home, you probably have a list of “must-have” features. It might be as simple as three bedrooms, two baths. Or maybe your checklist includes a breakfast nook, stained glass windows, a home theater and a claw-footed bathtub.
Regardless, you’ve put a lot of thought into what you want out of a home.
But many people fail to give that same consideration to their financial situation and whether they’re truly ready to become a homeowner. Many people are not quite ready for the financial responsibility of home ownership, and jumping in before you’re prepared can result in significant financial harm.
So, how do you determine if buying a house is a good money move? Here’s a checklist of financial and personal goals to accomplish before you set out to buy that first home:
You’re a budget mastermind
Were you born with the innate ability to manage a budget? Probably not. Budgeting skills have to be learned, and successful money-management is often the product of a lot of practice. If you’re a good budgeter, you:
Know where your money comes from, and where it’s going, each and every month
Pay off your monthly expenses without going into debt
Funnel a portion of your monthly budget into savings
If this sounds like you, you can check off this box!
Debt doesn’t control your life
Bear in mind that a mortgage is debt. It’s a great investment, but it’s still an obligation that you have to pay off.
Before you buy a house and enter into more debt, gain control of debt you already have. High-interest debt should be your first target, and something you should pay down before you buy a house.
But having some debt doesn’t preclude you from buying a home. For example, lower-interest debts like student loans and car payments can typically be managed alongside a mortgage payment. If you’ve worked the payment of these debts into your monthly budget, and you’re paying them off at a reasonable rate, you might be ready to buy your first home.
You’re ready to be landlord-less
Landlords can come in handy when something breaks. They’ll get it taken care of, and foot the bill too!
But when you own your home, you won’t have a landlord to depend on. When anything breaks or wears out, it will be your responsibility to fix it. And you’ll have to pay for it too.
A lot of people gloss over this area of homeownership. Be sure you think honestly about whether you’re ready to take on that kind of responsibility.
You have a sizable emergency fund
So how are you going to pay for those home emergencies? Every financially responsible adult should have an emergency fund. Not only will this help cover the cost of any home disasters, but it will help cover your mortgage payment and other monthly bills if you happen to get sick, lose your job, or encounter other unexpected events.
Your income is reliable
When you take on a mortgage, you’re entering into a serious long-term financial commitment. You need to be confident that you’ll be able to afford your mortgage payment a year from now, 10 years from now and even 20 years from now.
You should have a stable income as well as at least one to two years of employment history at your current job.
If you have any doubts about your job or financial situation, don’t buy a house: not being able to afford your mortgage could have serious implications.
You have a decent credit score
Most mortgage companies have a minimum credit requirement to obtain a mortgage. Getting a mortgage with a poor credit score may mean a higher interest rate, and that you’ll end up paying more over the life of your loan.
Generally speaking, having a better credit score means that you pay less to own your home. So, before you become a homeowner, beef up that credit score.
You’re ready to make the commitment to stay in one place
You should be able to live in the same place for at least five years. The graduate student who is looking to travel the world, for example, is not a good candidate for homeownership. It doesn’t make financial sense to buy a home if you’re not really ready to settle down.
You’ve saved for a down payment
Most mortgages require a down payment. The larger your down payment, the less interest you’ll end up paying on the loan. If you can save up the thousands of dollars required for a down payment, chances are, you’re in a good financial place to make a home purchase.
Buying a home is a serious commitment—and likely the biggest financial decision you’ll ever make—so it’s important to make sure you’re absolutely ready.
If you’re able to check off this whole list, congratulations! If not, keep working hard to get your finances under control: homeownership may be in your future yet!