You may find yourself constantly poring over real estate listings online, or you feel sick to your stomach every month when you write your rent check, or you just feel like it’s a milestone you ought to reach: homeownership. For the most part, we’re (obviously) proponents of buying over renting. But it’s not the answer for everyone. There are some general rules of thumb that establish readiness, and we’ve boiled down the basic considerations into a handy-dandy flowchart to help you determine if homeownership is for you.
Remember that not everyone’s situation is black and white. If you’re feeling the itch but don’t fall into the “buy now” category, we’d love to talk to you now to help get you on your way. For some, the preparation phase is three months or less; for others it can be two years or longer. Even if you plan to buy in a different city a few years down the road, we can help you come up with a long-term plan and find a great agent outside of Philadelphia.
Ready to learn more about the category you fall into?
For some people, it just makes sense to keep renting. If you don’t plan to live in the home long-term, you’ll probably lose money if you sell in two years or fewer. For some, holding onto a home as a rental property after they move on makes great sense—after all, real estate is generally a good long-term, low-risk investment. But for others, the headaches associated with being a landlord outweigh the benefits. So if you don’t want to be a landlord, you should probably not buy right now.
There is, however, one thing to think about: If the amount you’d lose from selling in just a couple years would be less what you would have spent on rent for that time period, it is something to consider—especially if you buy something with a mortgage payment that’s lower than your current rent. Keep in mind that no one has a crystal ball and can predict with certainty what the market will look like in two, five or 2o years, but we have seen people make this decision.
START PREPARING TO BUY
Many people who contact us about one of our listings turn out to be not quite ready to buy—don’t feel discouraged if you fall into this category. If you do, we’d be happy to sit down with you to help come up with a timeline and game plan. In the meantime here are the basic goals you should be working toward:
Lenders want to know that not only are you making enough today to cover a mortgage payment, but that you’re likely to be in the future as well. This is especially not a black-and-white category—we’ve seen lenders approve many loans for people who made a drastic career change or even had been unemployed at some point in the previous two years. But it is something that lenders strongly consider when approving or denying a loan, so typically it’s better to play it safe. If you definitely want to buy, think about what your career changes may look like on paper and plan accordingly.
Money in the bank
A common misconception is that you need at least 20 percent down to buy a home. That is definitely not the case. There are good loans out there (without high rates or insane fees) with down payments as low as 3 percent. However, it isn’t wise to deplete your savings account to buy a home, especially if you won’t be able to rebuild a cushion pretty quickly. Keep in mind that once you own a home, there’s no landlord to call when something goes wrong—if your water heater breaks, it’s up to you to get it fixed. You don’t want to be in a position where you’re choosing to pay your mortgage or have a repair made.
Credit score and history
It is true that the higher your score and the cleaner your credit report, the easier it is to get a mortgage. However, there are many loans that make homeownership attainable for people with fair credit, or people without much credit history at all. If your credit score is too low to qualify you for those loans, it may take less time than you think to get to where you need to be. Let us warn you: There are steps you can take that may boost your credit score, but actually make you less attractive to mortgage lenders. So before you go cutting up your credit cards, please reach out to us. We can get you in touch with a reputable lender who can review your credit report with you and let you know what steps to take—and what steps not to take—to get you approved for a mortgage.
You’ve built a decent to excellent credit history, you’ve saved money, you’re solidly employed and you aren’t going anywhere anytime soon—it’s time for the fun to start! The next step is to have a face-to-face meeting to talk about the homebuying process. We want to make sure you know what to expect as we take you to tour homes for sale and what will happen once you find “the one.” In the meantime feel free to set up your search criteria to browse listings and get alerts when new homes you may be interested in hit the market. We can’t wait to meet you!