Buying a house? Signs you’re not financially ready & how to fix it
One of the huge financial decision a person or family make in their lives is buying a house. Home buying is an exciting journey but it also brings with it an overwhelming financial responsibility. Hence why people are scrutinizing their finances first before fully deciding to it. Are you planning to buy a house but not sure if you’re financially ready?
You have low credit score
You may have always heard about credit score and not sure what that means. Credit score is a numerical figure that reflects your ability and likelihood to pay credit back. Banks and other lenders calculates and looks into credit score to see the level of risk in lending to you.
A good credit score means a higher chance of approving your loan. It also may mean significantly lower monthly payments and better interest rate on your mortgage. If you do not have a great credit score, consider delaying your plans until you built up your credit.
30% of your income goes towards monthly payments
Personal finance experts say that the total monthly payment should not consume more than 30% of your take home pay. these payments include monthly rent, insurance payment, utility bills, monthly tuition for the kids and the such. Any more than the 30% for monthly payment will put you in a tight position should those financial obligations increase.
Step back and examine your finances. Check where you can cut off your spending and see how it goes from there. Sometimes you just need a lifestyle to check to realize where your money is going and you have to be smart moving forward. You can also consider asking for a raise or adding a side hustle to increase your monthly income.
You don’t have emergency funds
Buying a house is a huge financial responsibility. It is not something that you can easily walk away from if you are having difficulty with your finances. Unlike renting where you can find another house with lesser rental fee, owning a house with a mortgage ties you up for a long time.
Emergency fund is money set aside should you find yourself without work or income. It is your buffer savings to help you out with your finances with sudden income loss. Having emergency fund or savings for emergencies like such will help cover financial obligations like mortgages.
If you do not have emergency fund yet, consider starting now. Not only will it help you achieve your financial freedom but it will also give you a peace of mind knowing you have back-up funds to cover your expenses for the unforeseen circumstances in the future.
You are not actively setting money aside for savings
Even with an emergency fund, you should still be able to set aside money to put on savings. If you don’t have extra money after you paid your bills and mortgage, you might be placed in a tight spot. Owning a home is also knowing that there will be maintenance or upgrade costs. Having just enough money to cover your means might get you deeper into debt.
You don’t need to set aside huge money every time but it does pay to start putting money into savings account to help fund some of your goals or for your future self.
READ: 5 Things to Do Before You Build Your New Home
You’re planning to move elsewhere
If you have plans to move to another province or country, it would not be a smart move to put yourself in a financial constraint by buying a house. The first few years of your mortgage mostly covers the interest and not the principal loan. Instead pool and save that money for the time you will purchase a home when you eventually move.
READ: How Do I Know if I’m Ready to Buy a Home?
You think you the only expense you need to worry is the one on the real estate listing or ad
Buying a house comes with a large cost. Keep in mind that there are additional charges and fees that comes when purchasing a home. Do not expect to only pay the selling price of house, there are more expenses to it.
Research on the additional charges you might encounter when buying a home. These includes bank fees, processing fees, move-in fees and the likes. You can ask your real estate agent on how much to prepare on top of the selling price of the property your eyeing. These additional charges and fees are not covered or included in your loan, so you need to prepare for it.
