Roommates, stolen food, dirty dishes in the sink – oh my! There are a lot of perks of living in your own home and not in an apartment.
But one of those perks is not lower cost. Eighty percent of the time it’s a lot more expensive to buy a house. So – if you think you’re ready, learn when is the best time to buy a house below.
When Is the Best Time to Buy a House?
In your late twenties and early thirties, you’re probably really tired of apartment living. Having roommates is another issue altogether, and you think it may be time to buy a home.
But how do you know if you’re ready and if it’s really the right time? Our first advice would be to wait. Once you think it’s time, wait a full year.
Make a savings goal (your down payment, maybe) and use that extra year to get it together. Or if you have debts, use that year to pay off as many of them as you can.
You can rent a house, in the meantime, if you have to get out of close quarters. Duplexes are a good way to transition to a home, and they’re generally cheaper per month.
Those are some general guidelines. If you can’t (or don’t want to) follow those, ask yourself these useful questions.
1. Is my Financial Life in Order?
Part of your credit score is your debt to income ratio. That means what you’ve used (of your cards) vs what you make. If you have 15,000 in student loans but you only make 30,000 a year, that’s not a great ratio.
Generally, student loans are a little more gentle on your credit score. But your credit card usage comes into play too. With a debt to income ratio for cards, there are two main things you want to keep in mind.
The first is the ratio – it works the same ways as it does for student loans. The second is how much of your available credit you’re using. We call this the credit utilization score.
You want to use less than 30% of each credit card. If you have cards that are completely maxed out – you need to pay those down.
Paying down your credit cards and reducing the credit utilization is a great way to raise your credit score.
A Note on Paying Down Credit Cards
A lot of people get confused about what the best way to pay down their credit debt is. Should you pay off the cards with the highest balances first, or the ones that cost you more money per month?
It depends on what you’re trying to do. If you’re trying to improve your credit score and paying down will help. But if you’re trying to reduce your credit utilization, then you’ll need to start with the most-used (highest balance) cards first.
If you’re just trying to pay them down to lower your payments (so you can save) start with the highest interest cards first.
2. Can You Swing a Down Payment?
Okay, so most of the time you want to put at least 10% down when you buy a house. But if you can save for longer and put down 20% that’s even better.
Why? When you put 10% down (or anything under 20%) you have to get mortgage insurance. We won’t get into why – but just know it’s an extra monthly cost.
So, though you’ll be saving for longer and putting down more with 20%, it may even out the costs in the long run. The general rule is the more you can put down, the better.
When you see a listing price on a home, consider that it doesn’t include closing costs, insurance, or taxes. As a homeowner you have to pay property taxes per year, which can be substantial depending on where you live.
3. Looking Within Your Budget
If you’ve ever seen the show “Property Brothers” you probably know what we’re about to say.
It’s better to buy below your budget and have some wiggle room to fix things you don’t like, than to max out your budget.
Plus, as a first-time homeowner, you never know what’s going to go wrong. You’re used to calling a maintenance person when something goes wrong, but now you have to pay those costs.
Set aside some of your home budget for those unexpected costs and any repairs you want to do. Remember that owning a home is a process. You may not love 100% of the features when you buy it, but you can fix it, a little bit each year.
And most of the time, every dollar you put into the house, is another dollar you can sell it for when the time comes.
There’s a reason people call their first house a starter house. You figure out what you like, what you need that you didn’t think you needed, and you can upgrade the next time around.
Calculate Your Payments
Now that you’re a homeowner (even if you’re just pretending right now) you have more costs than you’ve had before. Not only do you have to pay for every utility, but you have HOA fees, insurance, and property taxes.
Expect all that to come out to an extra two hundred (or more) a month.
With all that said, does it still all add up? We don’t mean to scare you away from homeownership, but to make sure you go in prepared.
We hope you answer these questions and that now, you know when is the best time to buy a house.
Want some advice for once you’re in the home? Click here.