Are You Ready for Your First Home?
Buying a home is exciting. No longer will you have to pay monthly rent; you can decorate your own home anyway you would like. You can begin to invest in a your property and create memories in your own home.
Before that happens, though, you must first decide if you are ready to own a home. Before you head to the bank to see what size mortgage loan you qualify for and compare mortgage interest rates, first determine if you are financially ready to own a home.
Remember that many who lost their homes in the housing crisis in 2008 and 2009 did so because they were not financially prepared for unemployment and wage cuts.
Before you start browsing available homes, think about these financial safeguards:
1. Do you have an emergency fund? Experts disagree on how much of an emergency fund you need, but the general consensus is 3 to 12 months of income. At the very least, you should have an emergency fund equal to 3 months of your take home salary. If you were to lose your job, at least you would have a small buffer. An emergency fund of 6 months of salary is even better.
2. Can you afford the property tax? Property taxes can run as much as $10,000 to $15,000 a year depending on where you live and how large your home is. That is another $1,000 a month you have to set aside for taxes. Can you comfortably afford to do that after making your monthly mortgage payment? (Compare mortgage rates at MortgageRates.ca to get an idea of what rate you qualify for and what your monthly mortgage payment may be.)
3. Do you have money set aside for home repairs? Experts recommend that you set aside 2 to 4% of your home’s value for repairs. If you have a $250,000 home, you should be setting aside $5,000 to $10,000 a year for repairs.
Many first time home buyers think in terms of how much they will pay for the monthly mortgage only. Don’t forget property taxes and repairs. Also, be sure not to drain your emergency fund to make a down payment. You need that money as a safeguard once you become a homeowner.
Good luck Penny Hoarders!
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