Ask any real estate agent the number one reason people do not buy a home and the answer is surprisingly simple; A person is just not ready to. But what exactly goes into someone not being ready? Maybe that person is not financially there or maybe they are unsure on their long term status. Finding the root cause of your hesitation could be key into overcoming a manageable concern. If you look close enough, you will find your reason, as well as some key ways to help you through the process to get the home of your dreams.
Let's find your reasoning and break through!
You are unsure if you are financially ready.
Understanding the financial implications of owning a home might be one of the most difficult things to both determine and accept. Owning a home could be one of the best long term financial decisions you could make but it also may make the short term impacts the most challenging.
Your first thing to determine is how much money you can afford to out down and how much you can afford with monthly mortgage payments. Look at your current savings to first figure out a down payment. Down payments can usually run 4 % for FHA loans and 10% for a standard loan. Also, increasing a down payment will yield shorter monthly payments. You can then look at you current quality of life to see how much you need to budget each month. Speak to a mortgage professional or use some online tools to help play with the numbers.
You also want to keep in mind other financial impacts of owning a home. Whether it is new construction or a lived in property, there will be issues that come up. You want to be cognizant on your down payment to ensure you have enough in short term savings should something arise. Plan to have even more saved away if you plan to embark on any new projects once you move it.
In all, determining your financial readiness includes a lot of factors. You will need to plan for a variety of costs with purchasing and owning a home. Speak to a mortgage professional and a financial planner if you need help determining these numbers to greater detail. These numbers will ultimately decide the price range of houses you look for a buy.
You are unsure of your future.
Being unsure of your future as a far less quantitative approach to figuring out. The best answer is that home ownership can be successful regardless of you future plans. The main thing to understand is that as long as you have a few key principles determine, you will be fine handling the uncertain questions. See below to help turn this emotional question into a financial and business decision.
Think of a house as a giant savings account. Each month you put money in (mortgage) to pay off what you owe the bank. As you owe the bank less, and the property appreciates in value, you will begin acquiring equity (savings) in the property. When you plan to sell, you will gain, or make, all that equity back that you put in with those monthly payments. If you rent a place for a year, that money disappears, if you pay mortgage once a month, you get it back in the end.
Next, think about your escape plan. It is never to early to think what you will want to do once you eventually move out. Making this decision will have a lot to do with the current market and your financial needs so this is not something you need to know when purchasing. But having an idea in mind could help.
The first move out plan is considered a long term approach. By renting your property out to tenants, you could pay your mortgage and collect cash flow on the property. To increases your equity and receive cash flow your rental income must exceed property expenses and mortgage payments. This approach will also require your time if you choose to be landlord, or payments to a property management company for a less hands on approach. This approach assumes more risk but also more long term upside.
Lastly, you can always choose to sell. Assuming you keep up with your house and purchase in a solid location, you can expect to make money on your property after selling it. Use this as a short term approach to offloading the responsibility or as a final cash sum after years of renting as discussed before.
While you need to be emotionally ready, you are not signing your life away. If you have passed the financial readiness and have money in savings that can support a couple months of mortgage payments, do not worry about your personal plans. You can make this work regardless.
You don’t know where to start.
Great! You are financially and emotionally ready to go… but you are a bit lost. Once you know you are there, the next thing to do is learn the process. Understanding where to begin is a huge barrier to entry for some people. The is a lot to understand so take it slow and step by step. By the end you will be an expert.
First, get an overview of the whole aspect home buying through research and by talking to family and friends. Familiarize yourself with key terminology and the basic concepts to real estate. Become acquainted the the milestones on the path to ownership. And know what to expect with regards to market rates and home prices so no one takes advantage of you.
Next, get yourself in order. Most of this pertains to acquiring a mortgage in that you will need to be prepared with multiple documents such as your income tax statements, bank records, and proof of identity. Having an idea of what documents you will need to produce will make the process go much smoother.
Lastly, choose your team. Throughout the process you will work with multiple professionals to acquire your home. Mortgage professionals, real estate agents, home inspectors, Title companies, and insurance agents, in addition to others, make up the vast network of people you will encounter and have work for you. Use your resources to find people you trust and work the hardest for you.
No need to stress. Get a high level overview of the process from any basic site and then start diving in. Use your own network as they could come in handy throughout the process. Enjoy the learning process, being excited about it is just another sign you are ready to buy!