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100 N Glendora Ave, Suite 108
Glendora, CA, 91741
United States

(626)335-8205

Fee Simple Escrow, Inc is an independent escrow company licensed by the Department of Business Oversight. We provide real estate escrow services for agents and For Sale By Owner (FSBO) clients. 

 

Are you ready for home ownership?

Are you ready for Home Ownership?

Answering these five questions may help you decide!

Buying your first home is one of the most important finance decisions that you will ever make. Make sure you are ready!
Here are five questions to ask yourself before you buy your home.

How Long Will You Be in the Area? 

Ideally, you should be planning on staying in your home for a minimum of three to five years. If it is likely that you will migrate to a new area before that time, you may want to wait a bit on purchasing a home.

There are a couple of reasons for this rule of thumb. The first is that you will incur a handful of costs that will take some time to rebuild in your equity. Unless you are getting a great deal on the house, you will need a few years to have your equity catch up to the spending getting into your new home.

Another reason is that the housing market has its ups and downs. Long term real estate has proven to be a very powerful tool in building wealth. However, begin forced to sell your home when the market is in a down cycle may prove to be very expensive for you. Having flexibility of when to sell your home can maximize the upside you experience.

How Much Can You Afford to Pay? 

A good rule of thumb is that the cost of your mortgage payment should not exceed more than 25% of your gross income. This means that if your gross monthly income is $5,000, your combined mortgage payment should not exceed $1,250.

Some financial planners suggest that you can stretch this percentage up to 28% if you have no other debts at all. But keep in mind, this should include all the mortgage payments in the case where you have both a first and a second loan.

Your total monthly debt payments (including the mortgage) should never exceed more than 33% of you gross income. If you reach beyond what you can afford, you risk losing your home so be realistic about your purchasing power and indebtedness. If you can’t afford the home you want now, you may want to consider renting a bit longer or looking at something that better fits your financial ability.

Most of all, don’t become discouraged. Diligence will pay off, and if you set your mind to homeownership as a goal, focus your energy on achieving it. Your effort will eventually pay off.

How Are You Financing the Loan? 

Once you understand how much you can afford for your mortgage, the next big question is what type of financing to obtain. A word of caution here, if the only way you can afford your mortgage payment is with an ARM (adjustable rate mortgage) then you really should not be buying a home.

If, on the other hand, you can afford the payment when the interest rate goes up, then an ARM may be the right type of loan for you. Just keep in mind, ARM loans start low and will go up over time. Be sure to understand how much they can go up, how fast they can go up and that you can afford the mortgage even when the interest rate is at the higher end of the scale.

If you are cash poor, you may consider an 80/20 financing arrangement. This is where you have two loans, one a long term 80% of value loan and the other a higher interest, usually shorter term loan for the remaining 20%. Here again, be sure to keep the total payment for both loans within the comfortable limits of your gross income.

Finally, there are many incentive programs for first-time home buyers as well as veterans. See FHA Insured Loans for more information.

Did the Home Pass Inspections? 

Before you buy you need to make sure that the home passes all inspections. 
At a minimum, we recommend buyers get a general home inspection done as well as a pest/termite inspection.

A word of caution to those that are looking for a fixer upper. These can be a great way to get more buying power and create some “sweat equity” in your home; however, be sure you fully understand what you are getting in to. While paint, carpet and flooring are nice, safe project for most home owners, remodeling kitchens, moving walls or even tackling electrical or plumbing projects can easily get out of hand and budget!

Most contractors will provide free estimates for homeowners. It’s not a bad idea to get a couple estimates of the work that you would like to accomplish. In some cases, your time may be better spent earning the money in your profession to pay for an expert who can confidently handle to work.

Are You Ready for the Responsibility? 

Homeownership is a huge responsibility. Things break, even in newer homes. Are you ready to take on the challenge of a major, unexpected repair? Make sure you are financially and emotionally prepared for the unexpected repairs. Having a fund set aside of at least $5,000 is necessary.

Do not give into the pressure to buy a home too early. Make sure you are prepared and go into the process with your eyes wide open. If you follow these guidelines, there’s nothing better than the feeling of owning your own home.

It is, after all, the American dream!