Thinking of making a move on the real estate market and finally putting a down payment on that dream house?
Whether you’ve increased your wealth over the years or diversified your revenue streams, buying a new house is a landmark milestone in your life. You have to weigh the pros and cons of owning a new asset, and you also have to keep an eye on ongoing expenses like taxes and so on. Besides having to pay the monthly mortgage, you also have to spend money on upkeep for maintenance and interior décor (to increase a larger tenant market). Are you ready for the financial commitment?
Let’s gloss over four major signs that it’s time for you to buy a house.
You’ve Got an Emergency Savings Account
Life can take a turn for the worse at a moment’s notice; this is why you need a backup plan at all times. A big emergency savings account is as good a backup plan as any; just make sure you’re not in the habit of withdrawing from it now and then.
The emergency funds can be used to meet maintenance expenses such as HVAC installation, repairing the water heater, and others.
Plus, there’s also the off chance of losing your income. This is bad news if you’re barely making mortgage payments. An emergency savings account can bail you out when the going gets tough and gives you enough time to get back on your feet.
You Can Make a Downpayment of 20 Percent
Let’s not pretend that those mortgage payments are easy. They represent a significant chunk of change from your income. This will be the norm for the duration of your loan term – which is 10, 20, 30 years, or more.
Mortgage payments will be less of a hassle if you borrow a lower amount, reducing your monthly payments and loan term. This is only possible if your savings account allows you to of at least 20% downpayment.
If possible, we recommend increasing the downpayment to as high as you can go, because you’ll end up saving more over the course of your mortgage loan. Moreover, putting down an extra $10,000 could get you a bigger house. Don’t be afraid of taking a quick peek at the local real estate market and readjust your plans. Sometimes, it’s better to wait and continue to save until you can increase your downpayment.
Pro tip: Your expenses will skyrocket once you buy a house. Think of closing costs, emergency funds, lender fees, taxes, legal fees, and others. Does your paycheck allow you to comfortably cover these expenses while still giving you a decent disposable income? If not, then consider waiting until you can increase your income.
You’ve Paid Down Most of Your Debt
Paying down debt not only increases your credit score but it also frees up cash for paying the monthly mortgage. If you’ve managed to reduce your student loan debts and credit card balances, you’re ready to buy. You don’t have to be debt-free when applying for a mortgage. Lenders are only concerned with your ability to pay what is owed to them.
A demonstrable history of making good on your monthly dues shows you’re ready to buy a house.
You Are Ready to Take on the Responsibility of Becoming a Landlord
The responsibilities of a landlord are many. Consider the cost of owning a home including mortgage, taxes, insurance, maintenance, and others. You also have to make sure your new house is ‘habitable’ and ‘safe’ to live in. Making adjustments to your new property so that tenants can comfortably live is also expensive.
Many landlords prefer to hire property managers to look after their property, collect rent, and tend to tenant needs. But even after you’ve delegated most of your responsibilities to a professional property manager, you have big responsibilities.
If you would rather enjoy a carefree lifestyle that doesn’t bog you down because of monthly payments, ongoing maintenance, tenant complaints, and other problems, don’t tie yourself down. Consider waiting a few more months, or years, until you feel you’re ready to take on more responsibility.
If you’re serious about becoming a landlord, or currently own multiple properties and need someone to manage the increasing responsibility, consider working with an experienced property manager in your area. This could save you the big bucks in the long run and make life much easier.
Jivko Stefanov, Content Manager