How Do I Know If I’m Ready to Buy a House?
Deciding to buy a home is an exciting decision. But because of the impact it could have on your future – and your finances - it’s not one to make lightly.
So if you’re wondering whether you’re ready to buy a house, read on and we can help you decide.
Knowing you want to buy your own home and knowing you’re ready to do it are not always mutually inclusive.
After all, you might have dreamt about having your own pad since the days you shared a box-room with your siblings but that doesn’t mean that once you left Hotel Mum and Dad you were ready to fork out for your first mortgage.
There are several concerns to take on board from the state of your finances to your current lifestyle. And asking yourself a series of questions before you start picking out bathroom tile patterns could save you a lot of last-minute back-tracking and heartache in the long-run.
Can You Afford It?
The prospect of buying a house can be both exhilarating and terrifying and you’ll need to get up close and personal with your finances before you know you’re ready to buy.
Affordability is not just about having the deposit – though, really, there’s not much point in going house-hunting or mortgage-shopping if you don’t have that in place or at least a viable plan to start saving for one.
A first-time buyer deposit is at least 10% of the home and there will be other financial outlays too. These include stamp duty, solicitors fees, mortgage insurance, homeowner’s insurance, costs for surveys, and more. While you won’t know these exact fees until you’re in the process, it’s a good idea to stash away 3-5% of the projected home sale price along with the down payment.
Affordability also takes onboard your current earnings, monthly outlays, and whether you’ve already proved through savings and rental records that you can afford to bankroll a regular mortgage.
This is not just information you’ll need for your potential mortgage provider (though that too). Taking a deep dive into your personal finances can help you figure out whether you can – or even want to –buy your own place.
Personal finance experts suggest your total monthly mortgage payment shouldn’t consume more than 30% of your take-home pay.
And even if you do decide to throw most of your salary towards your mortgage and live on boiled rice for the rest of your days, the Central Bank’s loan limit of three and half times gross income effectively stops you borrowing above your means.
Check Outstanding Debts
If you have any outstanding debts, you might also take a step back from considering a property purchase.
Car loans, other bank loans and multiple credit card liabilities are difficult enough to manage without lumping a major monthly mortgage repayment on top of them.
And if you have a habit of defaulting on debts, be aware that your credit rating may prevent you from qualifying for a larger loan from the get-go. All lenders will check your credit score before they sign on the dotted line. You can check it yourself first, of course, by requesting a free evaluation from the Irish Credit Bureau.
And finally, it’s important to remember that there’ll be financial costs even if you secure a mortgage and you’ve been handed the front-door key.
For starters, you won’t have an accountable landlady to call when your toilet’s blocked or the toaster’s broken. Any home improvements needed now fall firmly in your lap.
And while repairs and maintenance costs can vary widely, the general consensus is to expect to shell out around 1% of the home sale price every year.
If all of this seems reasonable and you’re confident you’ll be able to pay a mortgage and have a chunk of change left over for any surprise expenses or – you know – having a life, then chances are you’re ready to buy a house.
But just because you can afford to buy your own home doesn’t mean you should. You still need to ask yourself a couple more questions.
Are You Buying a House Because You Think “You Should”?
Buying a home is a principle step in many people’s life plans. But often it’s there as a given rather than something they thoroughly considered and decided was for them.
The truth is that a house is a big responsibility that requires a lot of care and attention, especially if you view it as a “starter home” and need to maintain its value so you can eventually move on.
It’s not an investment that has anything to do with age or the fact that you’re starting a family and should be “settling down”. It’s a commitment to make because you feel emotionally ready and are in a position to take on the financial obligations.
Still, you may be feeling pressured to stop “throwing your money away on monthly rent” and put it towards a home of your own. And, without a doubt, dishing out for a home-sweet-home can be a smart way to build equity. By paying off your mortgage little by little over the years, the portion of the property you’re financially in possession of becomes bigger. You can then draw from the equity using a home equity loan or cash it in if you sell your place later.
But #truthtalk: this is only a smart financial decision if you can afford it and you’re willing to put the time, energy and additional euros into building up your property into an appreciating asset.
It’s not the only way to invest and it’s certainly not the way to invest if you’re on the fence about whether owning and maintaining a house is what you want in the long run.
Is It Compatible with Your Lifestyle?
Taking a good look at your current lifestyle is a further way of knowing whether you’re really ready to tie the knot with a home of your own?
Having your own abode gives you full control over your living space - But as a general rule of thumb, you should be planning to live in that space for at least the next five years. Anything less than that gives you little equity. Also, as you’ll have already learnt, the transaction costs of buying and selling can be pretty steep.
So if you have grand plans to go hostel-hopping around the world for a few years or you’re on schedule to start a career that’s not necessarily tied to where you live now, it may be wiser to put the brakes on buying a house.
Sure, you might be able to rent out your property, but that can come with its own issues:
- Income tax rates on rental property can be very high.
- You’re not allowed a deduction for the mortgage repayments, which means you could make a loss on the property …and still have to pay tax on it.
- And even if you’re chilling out on an Asian island you’re still fully responsible for mortgage payments and any problems that might befall your property.
Buy a House to Enhance Your Lifestyle
Because you should commit to your property for at least five years, it’s also important that the house or apartment you buy enhances your lifestyle.
For example, buying a home in a location far from your work or the places and people you visit regularly will impact your everyday life.
More time spent commuting may mean having to rearrange your daily schedule. While being far away from friends and family could also leave you feeling isolated and regretting your house-buying decision.
Before you buy in any location make sure all the amenities that you need for a comfortable life are within easy reach. This could be parks, gyms, good restaurants or reputable schools if you’re moving with children.
You can check out Perfect Property’s Perfect Match to find houses and apartments in locations and with features that most suit your lifestyle.
If buying a house now sounds scarier that season one of Stranger Things, just take a deep breath! It is a large commitment on many levels and therefore not one we want to sugarcoat.
But if you feel emotionally and financially ready and know it’s the right step in your current circumstances, then the other side of the coin is that buying a home can be one of the most exciting and satisfying experiences of your life.
So, what do you think now? Are you ready?