Commitment Issues: Are You Ready To Buy a House?
By Cherise Wynne
In Philadelphia, the allure of homeownership can be more intoxicating than the drinks at Franklin Mortgage (Ed. note: and only slightly more expensive). You may have started looking at houses, either online or as you drive through your favorite neighborhoods. You probably dream about what it will be like to own a house. You start to notice aspects of architecture and landscaping that never caught your eye before. You start to recognize what you’re looking for, whether it’s a swanky condo downtown or a row home in a more residential neighborhood.
There are plenty of reasons to want to own your own place. Instead of paying someone else rent, you can build equity in an investment. Homeowners never need to worry about a landlord deciding to sell. You may just simply want to plant some roots, or .may only be thinking about money-making investments. No matter what motivates you, buying a home is still single biggest financial investment most people make. It’s not a decision to make lightly.
So, thanks to YIP, I’m here to offer some advice.
First, let’s discuss whether you should even think about buying a home at this stage in your life. For some people, it makes more sense to continue renting. You may still be thinking of relocating to follow your lifelong dream or reconnect with that old flame (Ed. note: that’s a terrible idea, by the way: (s)he is long gone), It doesn’t make sense to buy when you’re going to leave in the near future, due to the large transaction costs in buying and selling a house. Housing costs also play a major role in this decision. In cities like New York and Los Angeles, paying rent is almost always cheaper than paying on a mortgage. But in most parts of Philly, buying a home is a more fiscally responsible decision. Do your homework: if it’s cheaper to pay rent, then pay rent. You can then save your money to put a hefty down payment on the property of your dreams.
Second, check yourself before you wreck yourself: you need to know your credit score before getting serious about buying a home. This will influence a great many aspects of the process for any home buyer, like whether you can even qualify for a mortgage. Avoid hurting your credit score by avoiding bad habits like maxing out credit cards. You also want to keep your debt-to-income ratio (how much you make versus how much you pay towards debt) as low as possible so it shows that you actually have money left over to pay your monthly mortgage amount. If you think closing out old credit cards is a good idea, think again! The better and longer your credit history, the better candidate for a loan you become. Once you’re pre-approved for a loan, you should consult with your real estate agent and lender to discuss which loans best fits your unique financial situation.
Once you’ve got your financial house in order, its time to decide how much house you can order: You need to realistically think about how much you want to pay monthly for a mortgage. This is totally necessary to avoid the dreaded situation of being “house poor.” Sometimes thinking outside the box with living situations, like renting out your basement or having roommates, can also help keep you from living under water (and if they’re good people, you might even find a new friend). You can also consider buying a multifamily property, where you live in one unit and rent out the other, allowing you to cover most of your mortgage.
The best way to determine if you can afford the house of your dreams is to start making the payments: Determine what your monthly payment would be for your mortgage, and if that amount is more than what you’re currently paying for rent, start putting the difference in a savings account. If your future mortgage would actually be less than what you’re currently paying, then you can start to imagine those savings going back into your pocket. You will quickly see whether this amount works for your lifestyle, and you can start determining what you have to sacrifice, if anything. You might just find that having a larger house is worth cooking at home more often or getting rid of cable TV.
Cherise “AGENT LADY” Wynne is an experienced Philadelphia Real Estate Agent that helps clients buy and sell throughout Philadelphia with a focus on Center City and surrounding areas. She loves dancing, karaoke, playing a good game of spades and helping first time Home Buyers. She can also be followed here on Twitter.