Welcome to the first part of Amjambo’s series on homeownership. Future topics will include finding a realtor, deciding where to look, inspection, the bidding process, and closing on a home. If you have questions about renting vs. buying – or anything related to the finances of home ownership – drop us a line at: [email protected]. Our financial experts will do their best to respond.
The Musuamba family’s path to home ownership began in 2017, when Bright Musuamba, currently Program Manager at ProsperityME, took financial education classes along with her mother and her brother at ProsperityME. In class they learned all about the U.S. financial system, including how to budget and build a credit score. And in 2021, the family purchased their first home.
Buying a home can be exhilarating and liberating, and for many, signifies the realization of the American dream. But it can also be daunting or scary, with buyers likely taking on the largest debt of their lifetimes. Becoming a homeowner is a major decision and commitment. Here are five questions to ask yourself before buying a home:
Do I have a stable income?
One of the most important considerations is whether you have a reliable source of income. This will be crucial in making the monthly payments on a mortgage. Also, a history of dependable income is often a deciding factor in whether or not a lender will offer a mortgage. Figuring out the security of your job or income can be tricky to determine, but aspiring homebuyers need to feel comfortable that their employment status and income are secure for at least the next few years. A general rule of thumb is that total housing costs should not exceed 30% of the household’s take-home pay.
Is my credit in good standing?
Credit is the ability to borrow money to access goods or services, with the understanding that the borrower will pay it back later. Before granting any credit, lenders determine the borrower’s creditworthiness – or how likely you are to pay back the money, in full and on time. Creditworthiness is represented by a credit score, which is a number between 300 and 850. The higher the score, the better your creditworthiness. Those with a low score may have difficulty qualifying for a mortgage. Those with a higher score will be offered better interest rates and loan terms, which can translate to substantial savings over the life of the mortgage. Someone with poor or fair credit may want to consider ways to improve their score before buying a home. To learn more about credit, consult Amjambo’s finance column archives at amjamboafrica.com
Do I have an emergency fund?
The monthly mortgage payment isn’t the only cost aspiring homeowners need to consider. You also should plan for regular costs such as homeowners insurance, utilities, and taxes. Some costs associated with owning a home aren’t predictable. These include repairs – examples are a burst pipe, a shattered window, or a broken appliance; the list of possibilities is long. You also could find yourself suddenly out of work. Whatever the case, having an emergency fund can help you keep up with payments and make necessary repairs without falling into debt. A general rule of thumb is to have at least three months’ worth of living expenses saved away to cover emergencies.
Do I want to stay in this area long term?
Before buying a home, determine if you see yourself living in that home for five or more years. Experts recommend people stay in their purchased home for at least five years, which gives them a reasonable chance of breaking even on the purchase. Waiting five years would allow the home to increase in value enough to offset the closing costs, agent fees, and other expenses of buying and selling a home. If you don’t think you’ll be in the same home for five or more years, think twice about making the purchase.
Am I ready for this level of responsibility?
Becoming a homeowner is a huge responsibility. Most people who purchase homes take on a large debt, are faced with maintenance and repairs, and often need to make sacrifices to get the mortgage paid each month. For example, if you aspire to a college education, or travel, you need to make sure you could still afford the mortgage payment. Becoming a homeowner increases your list of responsibilities. For some people, waiting to buy a home may be best. However, for others, homeownership can be incredibly rewarding.