Your home should be your castle. Don’t let it become your financial prison.
I stole those words from some folks down the hall at USAA, but imitation is the best form of flattery, right? In any case, the phrase highlights the need for finances to be at the forefront when you embark on what can be the very emotional journey of putting a roof over your head.
In this series, I’m exploring the idea that the right time to make a financial move hinges, in large part, on whether you can make it in a responsible way.
Here are a few checklist items that could indicate whether you’re ready to purchase your home the right way:
Your Ducks (The Credit Ones) Are In A Row
That means you have checked your credit score, eliminated as much debt as possible and avoided applying for new credit for several months. You are now ready to take on what will likely be your biggest financial obligation.
You Crunched The Numbers, and The House Fits In Your Budget
If you can cap your mortgage payment at 28% of your gross monthly income, you should be on track — although that number could fluctuate given your location and financial situation. The total should include principal and interest plus property taxes and homeowners insurance. Beyond that you’ve got to budget for homeowners association dues, maintenance and the like. If you’re trying to keep your options open, spending less on the biggest line of your budget is not a bad thing.
You’re Determined Not To Bite Off More Than You Can Chew
Just because someone will lend you money doesn’t mean you have to borrow it. Your lender should not tell you how much you can afford. Period.
You’re Hunkered Down For The Long Haul
At an absolute minimum, you’ve got to be committed to homeownership for three years — and longer is better. Remember, it could cost 10 to 15% of your home’s value to buy and sell. That doesn’t mean you have to live in the home; you just need to be prepared to own it for an extended period. If a slow housing market or an unexpected PCS will make you a reluctant landlord, you may want to reconsider buying now.
You’re Sitting On Cash
Yes, you need cash to buy a home, even if you’re getting a VA loan with no down payment. You could need money for closing costs, furnishings or maintenance. Heck, I’ve had to fix my roof, replace broken appliances and repair the air conditioning — all in a relatively new house.
If you’re looking to purchase your next home, make the decision in a way where the windows of your palace won’t feel like they’re covered with bars.