Are you ready to buy a home? Many people are not prepared. Is that you? When will you be ready? Here are some guidelines that should help you in answering these questions.

Guidelines for Buying a Home

  • Have 20% of the price of the home set aside for the down payment. It is important to become a good saver prior to buying a home. This will also help you avoid Private Mortgage Insurance (PMI).
  • Get rid of your debt before you buy a home. This may delay your home purchase. Trust me, it’s worth it. Walking into a home debt free will reduce the stress of this very big decision.
  • Keep your payment below 30% of your gross pay. This payment includes the mortgage, taxes, and insurance. Do not let a bank tell you what you can afford. You make that decision.
  • Do not buy a starter home. You are not settling now, just so you can buy bigger later. Starter homes are a very bad financial decision in many ways. Stay away from them.
  • It will take many years to recoup your costs. If you don't see yourself living there for a decade. It might be good to rent. The way you lose less money on your home is living there a long time.
  • Get your credit score high, which means you will receive the best interest rate banks have to offer. Raising that credit score can save you many thousands of dollars over time. Strive to hit 760.
  • Your emergency account will not be depleted after making the down payment. Being house rich and cash poor can make you a prisoner in your own home. Be patient and wait if necessary.
  • Push hard to qualify for a 15-year fixed rate loan, but settle for a 30, if necessary. That 15-year loan will save you many thousands of dollars over time. It will also provide you a lower interest rate.
  • The relationship with your spouse or significant other is strong. Owning a house can be stressful; don’t bring a strained relationship into the mix. If you have issues, be patient and wait.
  • Be careful and don't let the lending institution shove you into a more expensive home than you want or need. Only take out a loan that you are comfortable paying back!

Is Homeownership Right for You?

Homeownership can be a wonderful thing, but it is not for everyone — and it certainly is not right for people who are not financially prepared. Wait as long as you need, and don’t let others push you before you are ready. This is a HUGE decision. Prepare carefully.

It is okay if you never buy a home at any point in your life. If renting is the best option for you, then so be it (homeownership is not for everyone). That is a message you will not receive from the real estate agents, government agencies (city, state or federal), the insurance industry, private businesses, or probably most of your friends and family. Let’s take a look:

When you rent, there are many costs you won't have to pay. You will not pay the fees that go with the loan process. You will not pay commissions (real estate agents). You will not pay property taxes (local government). You will not pay insurance (you might choose a low cost rental insurance policy). There are many costs that go with homeownership. Expect that to be about 10% per year factoring in buying and selling costs.

You will not pay for all the new “stuff” that will go into your new home (private businesses). You will not pay the sales tax (state and local government) on all that new “stuff” that you and/or your spouse "need." You will not pay for the weekly maintenance, constant upkeep, and improvements on that new house that will ultimately fall on you and your budget. That 10% number keeps popping up each year.

What about the federal government? They will receive much less in tax revenue, because there are fewer homes being built, worked on, and sold throughout the country. The point here is hopefully clear. There are many people pushing you into buying home because they benefit from you buying a home. Only buy a home when you are ready financially and psychologically. If you are not ready, keep renting.

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Stuff the lawyer wants me to say: Investing outside a bank or a credit union is not FDIC insured. You may lose the value in the investments you select. All information provided here is for informational purposes only. It is not an offer to buy or sell any of the securities, insurance products, or other products named. Translated: I am not selling anything! Educate yourself, research the information that you learned and finally make the right decisions that will benefit you and your family going forward.

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