Still Deciding Whether To Buy a Home? Answer These 5 Questions First!
We all know that buying a house is one of the largest financial decisions you'll ever make.
So, when do you decide that you are ready to buy a home? Here's a perfect example of how things can pan out:
My cousin and I have always had this rivalry.
At age 13, I bought my first bicycle. So did he!
At age 17, I got my first girlfriend. So did he!
At age 19, I financed my first car. So did he!
You're getting the point.
It was no surprise to see him buy his first home (ahead of me!) at age 23, shortly after getting his first official job upon graduating from the University of Johannesburg.
After proudly moving in, he quickly filled the place up with more upscale furniture than some of the actual furniture stores at the local mall!
Did his place look like a picture out of some fancy homeowner's magazine, or what!?
Then his double garage door stopped operating. Followed by his pool pump breaking down a week later. Then after one horrendous rain shower storm, his main bedroom ceiling started leaking. And all of this within one month of official registration of his house!
The story continues further in this article, but I just wanted to bring one important point across: just because you can buy a house, doesn't mean you actually should!
Being ready to buy a home entails more than 'having the money'!
So, how do you know when you're ready to buy a home? Here's a life lesson: it's not the "when" but the "who" that's important! What's your position in life? What's your lifestyle? Who are you really?
Simple, yet very important questions to quickly determine whether homeownership is actually for you! Some might be ready to buy a home at age 23 (my cousin wasn't), others might wait until they're 31 (that's me).
Renting a home or buying one each comes with its own advantages AND disadvantages - again, all depending on one's position in life.
To make things easier for you, here are 5 questions you ought to ask yourself whether you're ready to buy a home or not:
#1 - Lifestyle: Are You Ready To Settle Down?
Jobs come and go. So, how many job changes have you been through thus far?
Unless you've found "your dream job", perhaps renting might be the best way forward for the time being!
Realize that your home is a long-term investment, so treat it as such!
Buying a home today and hoping it'll have doubled in a couple of years isn't the realistic way of looking at it!
No need to buy a house just because of everyone else around you is!
#2 - Let's Talk DIY: Can You Fix a Leak?
After many years of renting my place, I quickly realized that owning your own place meant you no longer could call the landlord and complain that certain things needed to be fixed!
You are it!
Probably the biggest difference from being a renter! (other than the financial aspect of course)
In other words, you either need to be able to do A LOT of that fixing yourself or at least have the monetary resources to get it fixed.
Garage door broken? Pool pump out of order? Dishwasher packing out?
Plenty of 'little' surprises, which are part of homeownership, which can seriously wreak havoc on your monthly budget!
There's no way to avoid them - but at least you ought to be aware that they'll be heading your way!
#3 - Finances: Got Your Financial House In Order?
Over the years, my dear cousin has always been good at telling me stories: some of it turned out to be true; some of it turned out to be not.
Unfortunately, there's no way you can lie to yourself (or the bank for that matter) regarding your finances!
How about your:
- credit card debt?
- personal loan?
- car loan?
- student loan?
Whatever the excuse at the time, there's a reason why you took on debt: you had no money at the time of making that decision.
There might have been more month than money when you went shopping and repeatedly used that credit card, it isn't that simple with buying a house!
Have you been responsible with your credit?
Do you manage to have quite the high credit score or has it been a challenge all these years in timeously paying off your debt?
The financial institutions will see the above as a direct correlation with your credit habit, and as such, the "price" at which they'll be willing to lend you money (your interest rate).
#4 - Savings: Got Enough For A Down Payment?
There are a number of assistance programs around which you can turn to for help in getting extra support as a first-time home buyer. However, coming up with a somewhat sizeable down payment will mostly depend on you.
Ready to buy a home and put down 10%?
How about all those extra transaction costs: Conveyancing attorneys? Transferring costs? Taxes? etc.
No doubt that those costs will quickly add up, and as with the down payment, you'll need to have it in cash before registration! All of a sudden, being house poor is somewhat too close to home (pardon the pun).
#5 - Affordability: Can You Really Afford The Payment?
Let's be honest here: can you really own a home for the same amount as the rental you used to pay?
I'm sure many real estate agents will happily give you the two thumbs up! As mentioned above, your monthly bond payment is only a portion of the costs associated with homeownership.
Let's think of a few other monthly recurring costs:
- property tax
- insurance
- body corporate or Homeowner's Association (HOA) levies
- utilities (water, gas, electricity, sewage etc)
- ...
And how much would all those costs add up to by the end of the month?
There's more than just one piece of the (homeowner) puzzle! Only you can determine what would be a reasonable amount you can afford before buying your home.
Sure, as a rule of thumb, you are more than likely able to borrow 1/3 of your income, but let's keep it down to 25% instead.
Best case scenario: you pay back more than your monthly instalment.
Worst case scenario: you dig into that 'cushion' to help with those 'unexpected' monthly bills!
Closing thoughts
Having read the above article, can you honestly say you're ready to buy a home?
If so, you should have no problem answering the following questions with a 'confident yes':
- Have you sorted out all your debts?
- Has the time come to settle down?
- Is your credit score up-to-date and in order to be consulted by the banks?
- Is there enough of a decent down payment?
- Is the monthly repayment amount comfortably within your budget?
- And, of course, can you fix that leak?
If a firm 'yes' was answered across the board, congratulations on your decision to head into homeownership!
Don't let the tone of this article (which may have come across as being against homeownership) stop you from moving forward.
Educating the home buyer is the main priority of these articles and sometimes the truth isn't always as nice to hear!
As for my cousin and his difficulty as a homeowner, he ended up realizing that homeownership isn't for him; he sold his house a few months ago and decided to go back renting a place!
Buying a home is a big decision - as mentioned earlier, it isn't as much about "when" as it is "who".
And there's only ONE person who can truly decide on that: You!
Make it count!