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5 questions you should ask yourself before buying a home

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Buyer’s remorse can be painful. This is especially true if you have signed on the dotted line for something as significant as a home. A mistake can put your financial flexibility and health at risk. And hey, let’s not forget your mental health.

The effort continues to grow. The real estate market’s recent boom and subsequent slowdown combined with unheard of – at least in the last 15 years – mortgage interest rates make it even more important to avoid a home buying mistake.

Before you buy, here are five questions to ask yourself that can help avoid that hollow feeling in your stomach when you ask, “What have I (we) done?”

1. Is my credit squared away?

A yes means you’ve checked your credit score and know it’s good. You have reviewed your credit report at www.annualcreditreport.com and do not see any red flags or incorrect information. You have eliminated as much debt as possible and avoided applying for new credit for several months before dropping your application. The last thing you want is a surprise when you start the process for what will likely be your biggest financial commitment.

Why is it important: Access to a loan at the best possible interest rate largely depends on how you have handled credit.

2. Does this home fit into my (realistic) budget?

If you can limit your mortgage payment to 28% of your monthly gross income, you should be on the right track – although that number can fluctuate, given your location and financial situation. The total amount should include principal and interest, plus property taxes and homeowner’s insurance. In addition to that, you have to budget for homeowner association dues, maintenance and the like. If you’re trying to keep your options open, spending less on the biggest line item in your budget isn’t a bad thing.

Why is it important: Get the better of this purchase and you may find yourself a prisoner in your own home.

3. Am I stressed?

Buying a home is a big deal, so a little excitement on the edge of the purchase is probably the norm. But if you wake up in a sweaty bed or lose sleep wondering if you’re using too much, it could be your oh-so-smart insides saying “No.” Remember, just because someone wants to lend you money, doesn’t mean you have to. Your lender shouldn’t tell you how much you can afford; you should know. Don’t ignore the signs.

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Why is it important: No one understands the nuances of your finances like you do. Use that knowledge to avoid a mistake.

4. Am I in for the long haul?

As an absolute minimum, you must be committed to home ownership for three years – and longer is better. Remember that it can cost 10%-15% of your home’s value to buy and sell. This doesn’t necessarily mean you have to live in the home for years; you just have to be prepared to own it for a long period of time. If a slow housing market or an unexpected permanent change of station will make you a reluctant or unprepared landlord, consider buying now to avoid rental housing headaches.

Why is it important: Property prices ebb and flow, but the long-term trend has been upward. You don’t want to be forced to sell in a valley.

5. Have I built a comfortable cash storage?

Yes, you need cash to buy a home, even if you need a VA loan with no down payment. You may need money for closing costs, furnishing or maintenance. Heck, I’ve had to fix my roof, replace broken appliances, and fix the air conditioner – all in a relatively new house.

Why is it important: As a homeowner, I can say unequivocally that a house offers an endless stream of opportunities to spend (or have to spend) money. Be prepared.

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