It’s not unusual for long time apartment dwellers to not think about buying a house. They don’t check real estate listings in Canada because they simply assume that they can’t afford a house.
You can determine if you’re ready to buy a house. Check out these signs:
- You’re debt-free. You’ve checked your finances lately, and you realized that you’re done paying for your credit card debts, and you’ve paid off your car complete as well. In fact, even your student loans have been paid off. If that’s the case, you may be ready to get a new loan—a mortgage for your new house.
Of course, it’s not always easy to pay off your credit cards. If you’re having trouble, then buying a house is still far away in your future. You need to develop a fiscal responsibility first!
- Your job is secure. It’s not always easy to determine if your job is steady, but there are ways you can tell. Perhaps you’ve been with the same company for years, and you know that your contributions are valued and that you yourself are well liked by your peers. If you just enjoyed getting a nice raise or a promotion, then that’s also a good sign that your job is secure.
You’ll need that job security when you’re paying your monthly mortgage payments. It also helps if you have your own business, and if your small business is enjoying steady growth.
- There’s a nice chunk of cash in your bank account. A good rule of thumb when you first get a job is that you should set aside at least 10% of your income into your savings account. You can then monitor its growth, and you can have a safety net that can cover your bills if you need to find another job.
If you have enough in your bank account for a year’s worth of monthly bills (such as groceries and utilities), then it’s a good sign. You can also tell you have enough for your emergency fund if you have the equivalent of 6 months’ income in your savings account.
- You can put down enough for a down payment on a house. Aside from the 1-year’s worth of bills, you should still have some extra money to put down for a down payment on a house. The minimum is 10% of the cost of the house, but ideally you should have enough extra money to swing 20% of the house price as down payment. It is best if you can put down 20% for your down payment, since you can then pay less for your monthly mortgage payments.
- You’re ready to put down some roots. This may not be a clear-cut financial sign, but it’s still a crucial indicator. Any real home buyer will feel a need to put down roots. Usually, this feeling is accompanied by a significant change in your domestic arrangements. You may have decided to live with your partner, get married, or have children. Such changes in your domestic life often come with a new home to accommodate the new family structure.
Buying a home is not a casual undertaking. It’s most probably going to be the most significant purchase in your life. You will spend decades paying off your mortgage. So think carefully and make sure. If you’re sure, then go ahead—it’s always better to own a home than to rent!
About the Author
Joseph Hogue is a financial expert and investment analyst. After serving in the Marine Corps, he started his career investing in real estate before becoming an investment analyst for some of the largest private investors. He's appeared on Bloomberg and on CNBC as an investment expert and has published ten books in personal finance. Now he helps investors reach their financial goals and invest in the stock market with some of the same advice he used when working for the rich.