I was watching a Netflix Series the other night, “How to Get Rich,” hosted by finance guru and New York Times bestselling author Ramit Sethi. In one profile, he follows a young African American gymnast who purchased a condo but was clearly not ready for home ownership. She moved in not knowing who would be responsible for repairs, had not understood her HOA (Home Owner Association) fees would be in addition to her mortgage, and her mortgage was over 40% of her income. When she moved in she did not have hot water and several months later she was still taking cold showers because she could not get the HOA to make the repair and could not afford to pay for it. She could not afford to go on vacations, to have a meal out or to make even the most modest purchases.
She was not ready to be a homeowner.
I was really rooting for her because she wanted to be a homeowner….badly. She saw it as a pathway to wealth, independence and just the right thing to do. Who can argue with that?
But, getting ready to be a homeowner involves several important steps to ensure a smooth transition into homeownership.
Here are some ways to help you prepare:
1. Determine your financial readiness: Evaluate your financial situation to determine if you’re ready to take on the responsibility of homeownership. Consider factors such as your income, savings, debts, and credit score. Ensure that your finances are in order and that you have a stable income to afford mortgage payments, property taxes, insurance, maintenance, and other associated costs.
2. Start to accumulate savings: In anticipating your down payment, you will need at least 20% of the purchase price. So, for a house that costs $500,000, that’s $10,000. Now, add to the down payment closing costs, which usually range from 2% to 5% of the purchase price.
3. Set a budget: Yes, everyone wants the dream house, but can you afford it? Calculate your monthly income and expenses, including potential mortgage payments, property taxes, insurance, and maintenance costs. Your housing costs should not be more than 33% of your income. Can you afford the house and still afford a vacation and occasional meal out?
4. Get pre-approved: Go to your bank or to online lenders to see how much house you can afford. Get a pre-approval letter. You will need this when you finally find the home of your dreams and begin to negotiate. A pre-approval demonstrates are a serious buyer.
5. Research and explore neighborhoods: Research different neighborhoods that fit your lifestyle, preferences, and budget. Consider proximity to schools, amenities, transportation, safety, and future development. Visit the neighborhood during different times of the day to get a feel for the area.
6. Determine your housing needs: Consider size, number of bedrooms and bathrooms, layout, yard space, and other features.
7. Work with a real estate agent: Engage an experienced real estate agent. The right agent can help you find suitable properties, negotiate on your behalf, and ensure that you’re making informed decisions.
8. Start house hunting early: Begin your search for your home six months to a year before purchase. Attend open houses, schedule viewings, and explore different options. Compare properties, and consider their potential for appreciation and resale value.
9. Conduct inspections: Once you find a potential home, hire a professional home inspector to conduct a thorough inspection of the property. This will help identify any underlying issues or required repairs. Use this information to help you negotiate the price.
As a real estate attorney and broker, I am TEAM HOMEOWNER, but getting into homeownership before you are ready can lead to disastrous results.
Deborah D. Boddie, Esq.
Realtor, Broker, GRI, INV