Can I Buy a House – Or Am I Too Young?
Homeownership is seen as a truly “adulting” milestone. And it can be an exciting adventure for first-time buyers. But here’s a little cold water: the National Association of Realtors reports the average age of first-time home buyers is 35. And that’s an improvement from the previous average of 36! A discouraging mix of high interest rates and low inventory has sent housing prices up and mortgage payment sky-high. It’s enough to make you wonder: can I buy a house? Am I just too young to own a home?
While these aren’t easy questions to answer, check out our “worksheet” to help measure your readiness. Read on to gauge which requirements you already meet and what goals you want to aim for. With some planning is possible to become a homeowner…even before 35!
WHY BOTHER EVEN BUYING NOW?
Let’s get the obvious question out of the way first. If the market is so harsh, why bother? Isn’t it better to just wait for the market to improve? Not really! It seems counterintuitive, but there are a few good reasons for this:
Economists have been predicting that soaring interest rates will finally begin falling this year, and into 2025. High rates have kept many potential home buyers holding off. Likewise, potential sellers who were locked-in to much lower mortgage rates tend to be reluctant to sell. Dipping rates are likely to bring first-time home buyers who had been waiting back into the market. And while inventory is slowly stabilizing, dropping rates won’t fall enough to tempt many to sell, and thus, available houses may not keep pace with demand. This could result in even higher prices as more competition piles on low inventory.
What does that mean right now? Potential competition is still holding out for the impending rate drops. Meanwhile, strapped inventory is gradually easing up. It’s not exactly a buyer’s market, but we are in a relative “sweet spot.” With home prices likely to go up before they fall, this might be one of the better times to buy in the foreseeable future.
There’s a common saying in the mortgage world: “marry the house, date the rate.” Don’t let high interest rates scare you away from buying a home – they don’t have to be permanent! Refinancing in a few years if rates are lower is a possibility.
“CAN I BUY A HOUSE” BASICS
Markets and interest rates aside, there are some basic preparedness benchmarks to hit first. A decent credit score (we recommend between 620 – 720, though higher is always better!), low debt, an acceptable down payment (at minimum 5-10% and, in a perfect world, 20% or more), and reliable income to cover your impending house payments are a must. Real estate experts also recommend that you have an emergency fund amounting to 3–6 months of your typical expenses before you ask, “Can I buy a house?”
On the opposite end, FFCCU’s Conventional Loan Program empowers you to get a home without needing a significant down payment. It’s possible to be pre-approved with as little as 3% down plus closing costs. This is better even than Federal Housing Administration (FHA) loans which require a minimum of 3.5% plus closing.
HOW DO I KNOW IF I CAN AFFORD A HOUSE PAYMENT?
Your overall house payment should be less than 25% of your take-home pay for the month. Any more than that, and your monthly mortgage payment will cut sharply into your funds. That could spell trouble if you lose your job or have a large, unexpected expense. Consider ways you can bring that monthly payment down. For example, consider buying a smaller home or committing a larger down payment to avoid private mortgage insurance.
Also, pay attention to your payment-to-income ratio (PTI). PTI is your total house payment each month (including property tax, homeowner’s insurance, etc.) divided by your pre-tax monthly income. It’s recommended that first-time home buyers stick closer to a 28% PTI.
THE STUFF YOU DIDN’T THINK OF
So, you’re wondering, “Can I buy a house?” You’ve crunched the numbers, and it all looks feasible so far. But before you start swiping up a storm on Zillow, be sure you are prepared for all the sneaky costs of home buying as well!
Closing costs are an easy one to forget about. Generally, you can anticipate 3% to 6% of your new home’s price tag added on in closing fees.
What about the cost of actually getting out of your current place and into the new home? You can minimize some of that by leaning on friends to help you move (everyone has that buddy with a pickup truck). But even without hiring movers, you need to anticipate costs for deep cleaning supplies, boxes, repairing nicks and scrapes on the walls, etc. Moving.com ballparks around $1,250 for average moving costs.
If this is your first home, there’s a good chance you are coming from an apartment or condominium. Which begs the question…do you have a lawnmower? A Weedwhacker? How about a snowblower or at least a shovel (this is Northeast Ohio, after all). Having the basic tools of homeownership can also eat into your expenses.
Ugh, and have you anticipated those dreaded HOA fees?
As a benchmark, you can expect 1% of your home’s value per year in maintenance costs. It’s possible to cut into that with some DIY repairs, but that opens up a whole other can of worms.
“CAN I BUY A HOUSE?” CHECKLIST
That’s a lot to take in, and we hope you are more confident and informed (and not scared!) after looking at some of the realities of home buying. Whether you are ready now or need to work on your finances to get in house-shape, FFCCU is here to help. Fill out an application at ffcommunity.com, then we can chat mortgage and get a feel for where to start!
For those of you skimming and scrolling, the “too long, didn’t read” summary is below:
WHAT DO I NEED BEFORE I CAN BUY A HOME
- Decent credit score: the higher the better!
- Low or no existing debt
- A down payment greater than 5-10% and ideally 20% or more.
- Reliable income that ensures your house payment does not exceed 25% of your monthly take-home pay
- Additional funds for moving costs
- An emergency fund to keep you above water
- Some home repair and prep “walking around” money for those needs that will emerge once you sign on the line and get your keys.
SO…CAN I BUY A HOUSE…AND HOW DO I START?
At this point, you should have a pretty clear idea of how to answer. So, what’s the next step to get started? What if you’re still on the fence as to whether or not your position is stable enough to buy? That’s where FFCCU steps in!
At FFCCU, it’s our goal to make the complexities of mortgage a trivial pursuit. We offer personalized member service and mortgage rates that are hard to beat. Head over to https://www.ffcommunity.com/loans/home-financing/mortgages where you can apply today online, or leave your contact info and our mortgage team will reach out soon.
Posted In: Mortgage
