Are you ready to buy your first home? Bearing in mind that your first home could be a condo, loft, townhome, duplex, or single-family house, take the quiz below and find out if you’re ready for home ownership.
Question #1: Can you afford the monthly payment on the property you want to buy?
If you haven’t done so already, sit down and do a monthly budget and figure out how much of a mortgage payment you can make each month. We can then tell you how much home you can afford, and whether that payment will stretch far enough to buy you a home you’ll enjoy living in.
Question #2: Is your income high enough to qualify for a home loan?
Figure out what your mortgage payment might be on your new home (we can help you do this). Then, figure out your gross monthly income. The mortgage payment on your new home shouldn’t exceed 28% of your gross monthly income. And all of your debts combined (mortgage payment, credit card debt, student loans, car loan, etc.) shouldn’t exceed 40%-45% of your gross monthly income.
Question #3: Is your job and/or career stable?
Is your job stable? And if your job isn’t stable, is your career stable? If your employer came to you tomorrow and told you that you were being let go, would you be able to find another job – at the same income or higher income – within 30-60 days? Owning your own home is a long-term commitment, which requires the financial stamina to make your mortgage payment, month after month, year after year, even if something changes with your job.
Question #4:Do you plan to live in the Denver metro area for at least 2-3 years?
Do you plan to live in the Denver metro area for at least 2-3 years? There are costs associates with buying your first home, including closing costs which can equal 1%-2% of the amount of the home loan. There are also costs associated with selling your home (typically 6% for realtor commissions). And there are costs associated with moving. To break even, you’ll need your property to appreciate by 7-10%. There’s no guarantee that housing prices in Denver will continue to rise at the rate they have (or at all), but a general rule of thumb is that you should plan on staying in your new home for at least 2-3 years.
Question #5: Is your living situation stable?
Is your living situation stable for the foreseeable future? If you’re in the process of splitting up with someone or getting together with someone, you might want to wait until your life stabilizes. Ideally, you’ll want to be able to live in your new home for at least 2-3 years (see Question #4).
Question #6: Can you come up with the down payment and/or qualify for an assistance program?
Conventional loans require a 5%-20% down payment, FHA loans require 3.5% down, and VA loans require 0% down. Do you have the money for a down payment and/or would you qualify for a down payment assistance program? Give us a call, and we can put you in touch with mortgage companies and lenders that offer first time home buyers programs available for home purchases in the Denver metro area.
Question #7: Is your FICO credit score at least 580?
Most lenders, for most types of first time home loans, will require FICO credit scores of 580 or higher. If your credit score isn’t that high, do what you can, as soon as you can, to raise it back up. The best ways to raise your credit score are to pay off outstanding debt and clear up any black marks on your credit report.
Question #8: Will your mortgage payment be equal to or less than what you’re currently paying in rent?
If the monthly payment on your new home (including HOA fees, if you’re buying a condo, townhome, or loft) will be equal to or less than the amount you’re currently paying in rent, you’re ahead of the game! Once you factor in the tax deduction that comes from paying the interest and real estate taxes on your mortgage payment, you’ll be spending less!
Question #9: After you’ve paid your monthly mortgage payment, will you still have enough money in your budget to enjoy yourself?
After you’ve paid the mortgage payment on your new home, will you have enough left over to still lead a good life? Or will you be “mortgage-poor.” While buying a new home always requires making adjustments, you don’t want to cut it so close that you feel strapped all the time and have to drastically cut back on activities you enjoy.
Question #10: If you currently have a lease, can you get out of the lease in the next 30-60 days?
If you currently have a lease on a property that you’re renting, will it be expiring in the next 30-60 days and/or will your landlord let you out of it early? In Denver’s tight housing market, once you start looking for a home, you need to be prepared to act quickly. And there’s nothing worse than making a double payment – a mortgage payment and a rental payment.
Question #11 Are you ready for the responsibilities of taking care of a house or condo, including maintenance and repairs?
Are you prepared to take care of your own home? You don’t have to need to be skilled enough to perform the maintenance and repair tasks, but you do need to be able to deal with them and pay for them as they arise.
Question #12: Are you prepared to live with the risk that the home might go down in value, at least temporarily?
Although Denver’s housing market has been on an upward trend in recent years, that hasn’t always been the case. Can you live with the risk that the price of your new home might go down in value?
Question 13: Will you be happy in your new home?
Once you’ve figured out how much home you can afford, and we’ve looked at some properties in your favorite neighborhoods, does it seem like you would be happy in your new home? Or through the process, have you decided that it might be better to keep renting, at least for now?
Did you answer “yes” to all of the questions above? If so, you’re ready to buy your first home. If you answered “no” to some of the questions, don’t worry. Not all of them are deal breakers. Give us a call, and we’ll be happy to talk about your specific situation.
If you are not ready now, we can still give you tips for how to get ready to buy your first home!
For more information on buying your first home or to start the process, call (303) 222-0027, or e-mail email@example.com.
Note: Let us help you with the process of looking into property costs in your favorite parts of Denver. We can talk about your plans during a free consultation so you can learn about all of your options. We can also send out free e-mail alerts telling you when those properties go on the market.