How to Know When You're Ready to Purchase a Home

Purchasing a home seems to be one of the largest undertakings for an individual or family today. For first time home buyers, the lingo is often confusing, there seem to be too many options to sort through and understand, and the idea of purchasing a large investment that is "yours" to own for a number of years almost seems too daunting. I"m to help guide first time home buyers and those wondering if they are ready to buy a home through the process of home buying. Hopefully those that are wondering if they are ready to buy a home will find the answers to their questions

Why should I buy a home, instead of rent? Am I ready to own?

Pros of Home owning
I understand for some, that the idea of renting is appealing, as you typically are not responsible for maintenance, fixing problems or repairing things gone wrong. You also are not tied down to the residence for more than a year, unless you choose to extend a contract. The step of actually owning a home instead of feeling free to leave an apartment is sometimes what stops more people from buying.

The truth is, when you pay your rent payment each month, you are veritably throwing it away. You could drive through your neighborhood throwing $5 bills out the window and achieve the same result. When you rent, you can typically pay $6000-10,000 a year. And when you leave, all that money stays with the landlord, as opposed to when you pay the same amount towards a house and sell it, you get a large amount of that money back. If you buy a home and invest $10,000 over a year in mortgage payments, after 3 years you have invested $30,000, instead of merely paying rent.
This calculator will help you see if renting or buying is a better financial decision for you: http://partners.leadfusion.com/tools/freddiemac/home10/tool.fcs

A home looks fantastic on your credit. While it is classified as debt, it is considered as "good debt". Few debts (school loans and mortgages) can be considered good debt.

Some questions you need to ask yourself before you take the next step, and to assess your readiness are
-How is my payment history? Do I pay my rent on time, and do I have a good track record of payments?
-Do I have a good source of income? A steady income is important to ensure you can pay your mortgage payments each month
-How does my credit history look? Even those with moderate credit can be approved for home ownership
-Do I have money saved for a down payment and closing costs? There are programs that can help with these costs if you don't have a large amount saved

Some cons of home-owning
-If you don't choose a fixed mortgage, your costs can rise or fluxuate.. you can start out paying a specific amount, but your payments could increase. To avoid this, always choose a fixed rate mortgage. Your payments cannot and will not change
-If you want to move, you must sell your home first. You can rent your home out until you sell, but generally you still must sell your home. In renting, you also must pay large amounts to end a contract early
-Larger initial investment. If the large upfront down-payment scares you, remember there are programs to help pay for these things
-If work must be done, either you must do it, or pay someone else to do the work

Well it sounds good ... but can I afford it?
You might be surprised, depending on where you live, that mortgage payments can be cheaper than renting. Unless you live in extremely high cost living areas, such as parts of California or New York, you can most likely afford a house in your area. Home ownership even reduces the taxes you pay typically, as you can deduct certain parts of your payments (such as interest).
Your first step is to establish your monthly and yearly budget. Creditors and Lenders often use this equation to decide how much you can afford: your mortgage payment should be 1/4 or less of your monthly gross income. So if you make $2000 a month, you can afford roughly $500 a month. In order to determine how other current debt and other payments factor in, Mortgage lenders calculate all of your debt, and determine if it is more than 30% of your monthly income. If your debt payments exceed this, it can be harder to get approved. For instance, if you make $2000 a month, and your payments include a $200 car payment, one $50 credit card payment, another $75 credit card payment, $175 school loan payment, you can still likely be approved, because you have not exceeded 30% ($600).

If all that sounds really confusing, just remember a mortgage lender will sit with you and lay out all of this to apply to your personal situation. Lenders want to make sure that people are not taking on more than they can afford.

-Go to this website http://www.smartmoney.com/home/buying/index.cfm?story=howmuch
and calculate your monthly budget and see how much you can afford
-Pull your credit report and scan for any inconsistencies or problems with your report

There are many websites dedicated to helping you improve credit, save money towards a house, and to get approved for a mortgage. If you decide that you'd like to stop paying rent only to walk away after a year with no money, and you think you are ready to assess your budget and income, then you can start taking the first steps of looking in your area for homes, meeting with a mortgage lender, and shoring up your financial status

Remember that one of the only differences, at least financially, is that you must put a larger payment up front when buying the home, but then your payments are often lower. You pay mortgage payments just as you do rent payments.

In my next article, I will discuss mortgage options, explain the terms, and discuss programs that can assist home-buyers with down payments and closing costs