Most people associate purchasing a home with financial stability. But you don’t have to buy a home to be on financial solid ground, and home ownership doesn’t guarantee your finances will always be in order. Are you ready to buy a home? At Oaktree Law, our Los Angeles real estate attorney can help you decide. Let’s look at the basics first; you should have a stable, well-paying job, decent savings, and little debt, although it’s a little more complicated than that.
Money is usually the first thing one associates with home ownership. Having just enough to cover a down payment and a monthly mortgage is not enough. What if something goes wrong and you are short on cash? You should have six months of emergency savings. Since repairs fall on your shoulders, the general rule is to save 1% of the home’s purchase value per year to cover maintenance and repairs.
Home ownership also comes with tax benefits. The mortgage interest payments on your primary residence can be deducted from your taxable income. That can mean substantial long-term reductions in your tax obligations. Also, renting a home leaves various tasks up to the landlord, which may be fine. If you prefer more control, you may be ready to buy.
Paying a mortgage bill every month doesn’t sound bad to many people. Getting past the down payment, however, is a different story. However, you may qualify for a little or no down payment mortgage, so it doesn’t hurt to ask. There are options available to U.S. military veterans, people looking to buy homes in rural areas, and programs for low- to moderate-income buyers requiring minimal down payments.
People often put a lot of weight on their credit score. Although it helps to have a better score, on the order of 680 or higher, some lenders extend programs to borrowers with lower credit scores. For example, you can get an FHA loan with a credit score of 580. Those with higher credit scores, though, typically qualify for lower interest rates. Debt to income ratio is also something lenders look at; it helps them determine whether you can make monthly payments.
Are You Ready to Stick Around?
If you’ve found where you want to live for a while, buying a home might make sense. It doesn’t make sense if your company is transferring you to a different location, or you plan to sell the home in a short time. Besides, you wouldn’t have recouped the costs of appraisal, loan origination, and inspection fees; breaking even on these can take five to seven years.
Do You Feel Ready?
You don’t have to buy a home just because you can afford it. Upkeep, property taxes, homeowner insurance, and other responsibilities can hover over you. Responsibility is essential. The consequences of defaulting on mortgage payments are more severe than eviction; a lien or foreclosure can leave you without a home and in financial ruin.
Consult with a Los Angeles Real Estate Attorney Today
Think your finances aren’t sufficient, or credit not good enough, to buy a home? Let a real estate or mortgage consultant look at your goals and finances. Perhaps the rent you are paying is more than a monthly mortgage payment would be. Maybe it’s your first time buying, and you need help with loan pre approval, contract negotiations, closings, and other steps. If you need a real estate lawyer to help, contact OakTree Law to discuss your options and make the best decisions.