Are you ready to Buy Property? 6 Questions to Ask Yourself Before Taking the Plunge
Buying property is and always will be a big decision. There are a lot of factors to consider, a lot of processes to follow and, of course, a lot of money involved.
It can be very tempting to continue renting because it is safer than the responsibility of paying off a twenty or thirty-year loan.
Owning property, however, has many financial benefits that renting a unit won't give you.
You build up equity and you make an investment that will appreciate over time.
But when is the right time to buy? Answering this question will elicit different responses from different people. It might leave you feeling confused and unsure of what to do.
Here are a few questions that you can consider before making the decision.
1) Do I have a solid income?
This is arguably the most important question.
You need to determine whether you have a stable and solid income.
These are the funds you will use to pay off your mortgage, after all.
Not only do you need to be sure of your current income but you also need to be confident that you will have this income for the next few years.
It is generally easier to buy a home if you have a monthly paycheck but if you are self-employed it doesn't mean that it is impossible.
The lender will have a look at your bank statements and determine whether you can handle the responsibility of paying back a loan.
2) Do I have enough money for a down payment on a property?
The next thing you need to consider is a deposit.
Most financial institutions require a 10-20% deposit for the loan to be approved.
It is advised, however, that you save as much as you can for your down payment. The bigger your deposit, the better.
A bigger deposit will significantly decrease your loan amount from the start. This means that your monthly repayment amount will be less than if you only paid the minimum amount.
You might also get a lower interest rate if your deposit is a bit bigger.
3) Do I know my affordability?
As soon as you have saved enough money for a deposit, you need to determine your affordability.
This is the loan amount that the bank can give you based on your financial history.
They determine whether or not you can afford a certain amount based on your income and your expenditure.
You can use a mortgage calculator to calculate this or speak to a financial advisor at the financial institution of your choice. Knowing this amount will empower you financially.
You can then start narrowing your choices down and deciding on the maximum purchase amount that you are willing to spend on a home.
4) Is my credit score healthy enough to purchase a property?
Credit scores play a big role in determining whether your loan application will be accepted.
Your credit score tells the bank that you can manage your debt effectively and that you have paid your other bills on time.
If you have a high credit score, it means that it is less risky for the lender to approve your bond. Thus the chances are higher of you being approved for a home loan.
A good credit score is built up by maintaining healthy financial habits.
You shouldn't have too much unnecessary debt and the debt that you do have should be paid off as soon as possible.
On the other hand, you also shouldn't have zero debt. The financial institution needs proof that you can pay something back every month.
A good way to build up a credit score is to open an account at a clothing store or get a credit card.
5) Do I have an emergency fund?
It usually happens that buying a house drains one's savings so you are left with very little when you move in.
It is always a good idea to have separate savings account for emergencies.
You might move in and find that you have to fix a wall or replace a window.
These are necessities that will negatively impact your life in your new home if you don't tend to it. You can then rely on the emergency fund to fix what needs to be fixed.
You can also continue saving for a rainy day when you need it most.
6) Do I want to be a long-term owner of the property?
If you buy a property you are making a long-term investment.
It is not something that you should buy and sell again in a year. It needs time to appreciate over a few years.
If you are buying a house, you need to be certain that you want to stay in that area for quite a long time before selling again.
If you are buying to rent out, you need to ask yourself whether you want to be a landlord for a few years before selling.
Selling too early might not bring you the profit you want at the end of the day.
Final thoughts
Owning property is an exciting step but it needs careful consideration. It is also a long-term commitment.
If you are ready for this type of responsibility, then you are ready for your journey as a homeowner.