The purchase of a primary residence can be one of the most important decisions of your life, as it will affect your future and the futures of your loved ones. Even though it is essential to know how the market is doing at the moment in which you’re interested in acquiring a property, it is equally as vital for you to understand your capabilities and financial standing to be able to determine if you’re in a good position to buy.
Consider your career stability and length of stay.
Evaluating how long you’re planning to live in the city in which you’re buying a home is crucial. Do you see yourself working at your current company within the next few years? If so, do you envision the company asking you to relocate? Asking these questions can guide you toward the type of property that may work best for you.
In New York City, for example, co-ops tend to be more restrictive toward owners renting out their apartments should they ever need to, while condos are generally more flexible because of their ownership structure. Begin by understanding the differences between condos and co-ops. As well, being aware of your job expectations can help you make a more informed decision that will have a positive financial effect after your purchase.
Evaluate your financial standing.
If you’re considering buying a house or apartment, you should keep in mind the following financial factors that may impact what you can afford in the short and long terms:
• Down payment: Usually around 20% of the final sale price, this will depend on a couple of factors including the ownership structure of the building you’re interested in.
• Closing costs: These tend to be around 3% of the final sale price, but you may easily estimate what your circumstance would look like with the help of online calculators.
• Liquid (nonretirement) fund requirements: These additional post-closing monies are often required in co-ops and commonly total two years of mortgage and maintenance costs.
• Your debt-to-income ratio (DTI): Co-ops often look for their prospects not to exceed 25% in their DTI.
• Credit score: A number higher than 700 is generally considered to be very good, but scenarios will vary depending on the building you’re interested in and other market factors.
Also remember that, more often than not, the broker fee is paid by the seller. This means that having your situation assessed by a real estate professional might be not only in your best interest, but also completely free if you’re beginning to consider buying your next home.
Learn about external factors impacting your decision.
Whether or not you’re ready to purchase your first home, it’s also essential to learn about the market in which you’re interested. Is it a buyer’s or a seller’s market? How has the market shifted in the past few years? Are there particular factors driving the price of the properties in the area you’re interested in? Learning the answers to these questions can help you set a more realistic expectation for the ROI you would like to have.
The decision to buy your first home should come once you understand your own internal factors as well as the external factors that will influence the price of your desired property as time goes by. As a rule of thumb, know that if you’re planning to live in the same residence for over seven years, you should at least consider buying for a more favorable return on your financial contribution.