Thinking About Taking the Plunge? Tips for a First-Time Home Buyer
Dear Carrie: I'm 35 and would really like to buy my first home. I've saved a pretty good chunk for a down payment, but I still worry that I'll get in over my head. How can I know for sure this is the right move for me? -- A Reader
Dear Reader: While recent statistics show that more millennials are getting into the housing market, I get numerous questions from young people who are still worried about making this big commitment. And that's understandable. Buying a home is one of the biggest financial decisions most people ever make, so there's a lot to consider. Not only are you laying out a huge chunk of change, you're also redirecting that money away from other things, which may or may not be even more important to you. It's enough to make anyone hesitate.
I recently talked to a young couple -- good jobs, newly married, baby on the way -- who had similar concerns to your own. They wanted to buy and were financially stable, but they were still unsure how much house they could afford. To help them decide, I suggested they look at the big picture and put all their finances in front of them. In effect, do a financial plan.
I realize that the idea of a financial plan can feel a bit daunting, but it doesn't have to be. In fact, a DIY approach can work for many people. The point is to take a holistic look at your circumstances and finances. Once you're armed with that information, you'll be in a position to make an informed and confident decision. Here are some questions I asked them and I suggest you ask yourself.
Is Buying a House One of Your Top Goals?
To know where buying a home fits into your financial picture, you have to look at all your goals and priorities. Think about your desires regarding career, travel, family, education and retirement as well as homeownership.
Looking at the other things that are important to you can help you put your home buying decision in perspective and increase your confidence that you're making the right move at the right time. Are you married or with a partner? Needless to say, make sure you make the decision together.
Have You Looked at All the Numbers -- Not Just the Down Payment?
Having the down payment for a home is important, but it's only one piece of your financial commitment. You want to be confident that you can also handle the ongoing financial responsibilities of homeownership: not just the mortgage but all the other expenses, such as property taxes, property insurance, maintenance and repairs.
Next, look at your other numbers: how much money comes in each month, how much you need to spend on essentials, how much more you want to spend on extras, whether you're on track with retirement savings, whether you're carrying credit card debt, etc. Also make sure you've got adequate insurance and that you understand how home ownership will impact your income tax bill.