When's the right time to buy a home?
The millennial market has been a hot market that has picked up pace in buying homes over the last few years. Many millennia’s that haven’t yet purchased a new home but want to do so find themselves wondering if they should purchase a new home and stop wasting money in rent each month. Weston Dean Custom Homes, a premier Boerne Custom Homebuilder
, shares why student loans shouldn’t scare buyers away from investing in a new home that will serve them better in the long run.
Since purchasing a new home is one of the biggest financial decisions anyone will make in their life, it is best to way the pros and cons of if buying a new home is the right decision for you.
The first step you should take is to decide if it makes sense for you to become a homeowner at this stage of your life. Writing a check each month for rent may seem like you’re throwing money away, however piling mortgage debt on top of student loan debt can create a long-term budget crunch that you don’t want to get yourself trapped into, if you aren’t ready financially.
Student loan debt goes towards your education, which cannot be taken away. However, if you purchase a house outside what you can afford each month, your house is something than can and will be taken away from you.
Along with your credit score, your debt-to-income ratio is the most important thing to look at before considering buying a home. It is also the first thing banks will look at before issuing a loan for a home as well. Your loan amount will be dependent upon your ability to repay.
To figure out what your ratio is, add up all of your monthly debts. These debts are things such as your car, student loan, credit card expenses, potential mortgage payment, and then divide that number by your gross monthly income. In order for your mortgage to be backed by the government, this number cannot be higher than 43%.
Low mortgage rates and high rents are what is pushing millennia’s towards purchasing homes and forgoing renting. However, you need to make sure you are at the right place and time in your life to really put roots down and purchase a home. If you only see yourself staying in your current location for two years, than it is more financially responsible to rent than purchase a home. Until you’re ready to stay somewhere more long-term, it is best to wait on buying a home.
When it comes to down payment options, be educated on what your options are to know which one would work best for you.
First, the down payment size will impact the total cost of your loan. A bigger down payment means you will be borrowing less from the bank, which will lower your monthly payment. It can also lower your interest rate, which will reduce how much you will pay over the life of your mortgage.
The average payment of a conventional 30-year mortgage was 17.5% in the fourth quarter of 2015.
If you don’t have a huge down payment saved up, there are options for as little as 3.5% to be put down towards the down payment of a home. The Federal Housing Administration will back mortgages for as little as 3.5% down, but will also equate to higher interest rates on the loan. However, with interest rates still so low, many are taking the leap now because it makes more sense.
When figuring out how much money to put down on your home, do not wipe out your savings account to do so. It is good to keep a cushion over things that you may not expect, like closing costs, home insurance and furniture for your new home.
This simple overview will leave you with the best options to weigh if now is the right time for you to buy a home.