Are You Ready to Be a Home Buyer?
Question: Are You Ready to Be a Home Buyer?
A reader asks: "I would like to be a home buyer, but I don't know if I'm ready to buy a home yet. How can I tell? Part of me is frightened that I'll lose my home or won't be able to get a mortgage. I'm 26, single and gainfully employed. Does it make sense for me to be a buyer? I mean, how do I know if I am ready to be a home buyer?"
Answer: Buyers of real estate are making the biggest investment they will most likely ever make in their lives.
That can be scary for some buyers. In some states, buyers are personally liable for the mortgage.
When my husband and I bought our home in Sacramento, he was totally freaked out for a while. He walked around repeating to himself, "I owe a quarter of a million dollars." He was more focused on the debt than on our huge amount of equity. We made a substantial down payment. Pouring all of that money into our new home wasn't the problem, it was the amount of debt that worried him.
Many first-time home buyers put down a minimum amount and buy a home using an FHA loan. This means your home is leveraged, and you cannot immediately sell it and hope to make a profit. It's a commitment. A long-term commitment, in most markets.
Top 5 Traits of a Home Buyer
You need to live somewhere. If you can buy a home for around the same amount you would pay in rent, and don't mind staying put for a while to build equity, becoming a home buyer might be a good decision.
You will make a good home buyer if you are:
- A buyer who conforms to the market.
If you are the type of buyer who says, "Every home on the market is overpriced; I'm not paying that much," then you are not conforming to the marketplace. Serious home buyers research the market and have realistic expectations.
- A buyer who has savings -- enough to put 2 to 3 months of mortgage payments in reserve.
Mortgage lenders want buyers to have a reserve. You should not take every nickel you can rub together and throw it into your home purchase. You will need a small emergency fund.
- A buyer who has the resources and time to maintain a home.
Homes require upkeep. You'll have a lawn to mow, windows to wash, furnace filters to replace, and you may need to tend to minor repairs from time to time.
- A buyer who is employed with at least two years on the job.
If you don't have two years of employment at the same company, then two years in the same field will suffice. Lenders expect to see stability in your employment history.
- A buyer who plans to stay in the area.
If your state of residency is uncertain, it's probably a good idea to skip buying a home. Some buyers who relocate are able to rent out their home, but handling a rental long distance is not always wise. You don't want to be forced to sell when you don't have enough equity to pay commissions and the other costs to sell.
At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.