PhotoBuying a home can be a good investment. It can be a rewarding experience for you and your family.

But the fact is, it isn't right in every situation and it only works if the buyer is financially prepared. As we saw during the housing crisis, buying a house when you aren't ready can lead to disastrous results.

How can you tell if you're ready? The experts at real estate marketplace Trulia suggest asking yourself some questions.

The first has to do with income. Does your household earn enough money to make the monthly payment on a home, pay for insurance, pay the taxes, and cover maintenance and repairs?

When you rent your home, all of those costs are baked into the monthly rent. If the water heater goes bad, that's the landlord's problem, not yours.

It's true that, with low interest rates, a mortgage might be the same, or even less than rent in some markets. But you can't overlook the other costs of owning a home.

Debt-to-income ratio

What about your debt? If you have outstanding student loans and rising credit card balances, you might not be ready to take on a mortgage. In fact, that could be one thing that might disqualify you.

Lenders look at a borrower's debt-to-income ratio. If the ratio is too high, it reduces the amount you can borrow. In most cases, a lender will want your debt to be no more than 36% of gross income.

When looking at your savings, don't just think about how much you need for a down payment. If the down payment takes all your ready cash, you'll have nothing left to cover those expenses that almost always crop up in the first year of home ownership.

Two important factors

Before considering a home purchase, you also need to make sure you will qualify for a mortgage. Two factors could keep that from happening.

First, you need to have been on the job, or employed in the same industry, for at least two years. Lenders want to see that employment consistency before they'll consider funding your home purchase.

Second, you need a reasonably good credit score. While it is true you might qualify for a subprime mortgage with a marginal credit score, there could be some real disadvantages to being lumped into the subprime sector.

Having a better credit score -- 720 or better -- will get you a better interest rate, in most cases. So it might be wise to spend some time trying to raise your credit score before considering a home purchase, and the easiest way to get started on that is to simply pay all of your bills on time.

Finally, give some thought to the future. If you purchase a home, you'll need to live in it for a while before you can sell it without losing money. The experts at Trulia suggest three to five years is the minimum length of time you'll need to live in it before selling.

If you think there's a good chance you'll be relocating in a couple of years, the prudent thing to do is keep renting.


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