Successful Home Ownership III – When Does it Make Sense to Take the Plunge?
by Evan Vanderwey on 18/06/10 at 11:21 am
It’s easy to print the “regs” and find out from FHA or VA or Fannie Mae just what it takes for them to approve a loan for you. The rules and guidelines are very detailed but they’re understandable.
But did you know that I can approve a person whose gross (before taxes and all other withholdings) income is $60,000 per year for a $2500 house payment under the right list of conditions? That’s half the borrower’s income. The before tax income! In this case the person would have approximately $1200 left every month to pay all utilities, car insurance, life insurance, groceries, Christmas presents, etc. Not sure how this make sense, but FHA will do it – and with only 3.5% down.
Here are some helpful benchmarks to consider before trying to buy a home or make a move up into a more expensive home.
Debt
Set a goal to have all of your debt paid off. No car loans, no credit cards. For most people, that would free upwards of $600 or more per month, money that can be used to make home improvements and to take care of home-related things that must be planned for like a new roof or septic repair.
Reserves
You should never get into your home using your last saved dollar. Emergencies happen in life, but buying a home is not an emergency. Even non-emergency-type events happen that cost money. So consider saving up to three months of your current monthly budget over and above what you need for your down payment. A new $300 water heater can be a very calm and non-emotional event – if you have the money to pay for it. When you don’t then something that simple (which is inevitable if you think about it) can be a day or even a week wrecker.
Stable income
We can never be sure that our income will continue exactly as it has, much less that it will increase – just ask state employees and General Motors union workers. Nothing is certain, and that’s a certainty. Yet it makes sense to remember a few things: Don’t commit yourself to a payment based on needing to make overtime or bonuses; And wait until you’ve settled into the job and like it (and they like you) before taking any step like a home purchase.
Put a ring on her finger and get Married already
I would never recommend buying real estate with a friend, or even with someone who is more than a friend. Tie the knot first. I don’t mean to be preachy, but I find more often than not, folks who are not married and buy a home together end up in a difficult spot. Getting into a home is much easier than getting out of one. Make sure it’s forever before taking this step.
Let’s face it, lenders are good at getting deals approved and closed. They’re motivated because they get paid for it – this is good for you. You want the person working for you to work hard and not give up until the deal you want is closed. But that means you need to be watching your own back. If you walk into a lender’s office and express a desire to own a home or move up to a larger one, don’t expect much from the loan officer except for him to get that done for you, whether or not you are actually ready for it.
