Ask USAA: Are we ready to buy a house?

Before taking the leap from renter to homeowner, there are five homeownership factors to take into consideration.

Hello, and welcome to Ask USAA. My name is Scott Halliwell. We have a question from Manuel in Texas, and his question is, “Are we ready to buy a house?” He says that he and his wife feel that they’re ready to move forward, but he would like some additional input first just to make sure. You know, the reality is that this is a great question that I wish a lot more people would ask, so thank you for asking it, Manuel.

So before take the leap from renter to homeowner, there are five homeownership factors that I think you should spend some time giving some serious thought to first before you buy the house.

The first one is your emergency fund. Do you have an emergency fund in place that’s equal to three to six months’ worth of your committed expenses? And I would use post-home purchase expenses for this calculation. If you don’t, that should be your first step.

You know, one of the easiest ways to turn the American homeownership dream into a home ownership nightmare is to buy a house without having sufficient funds in the bank because there’s an almost never-ending series of things you could spend money on when you own a house. So before you get into one, you need to have a lot of money in the bank.

The next homeownership factor you need to think about is a budget. Do you currently budget your spending? If not, I highly encourage you to start before you buy the house. Again, owning a home presents an almost endless list of possible opportunities to spend money, so you want to have a solid system in place to control your spending before you buy the house.

And here’s the thing. When you build your budget, you should also factor in the additional costs of homeownership like insurance, taxes, maintenance, landscaping, potentially higher utility bills, just to highlight a few.

The next thing you should think about is your down payment. Do you have a 10% to 20% down payment saved up? I know that sounds like a lot, but 20% is ideal. That way you won’t have to spend money each month on private mortgage insurance, and you’ll have some cushion in place in case the housing market doesn’t cooperate with you in the short term.

You’d hate to buy a house and have the market go down and find yourself owing more on the home than what it’s worth. I know a lot of people in that situation right now, and frankly, it’s not a good one to be in.

Another homeownership factor that I would urge you to think about is stability of income. I realize this can be a hard one to nail down in this economy, but before you buy a house, you want to be pretty comfortable that your income or your ability to earn it is stable.

And finally, you want to be fairly comfortable that your location is stable and that you won’t have to move anytime soon. You know, buying and selling a home comes with a lot of expenses, and the housing market is anything but stable in some parts of the country.

Consequently, for a home-purchase decision to be a prudent one, you want to plan on owning the home for a long time. Generally, I’d say at least five years. So Manuel, what do you think? Based on these items, are you ready to buy a house yet or not?

You know, because we can’t predict the future, there’s probably no perfect time to buy a house. However, having a handle on these items that I talked about should make the decision less problematic and put you in a better place from the start.

Thanks again for the question, and best of luck to you both.

Views and opinions expressed in this program are provided for informational purposes only and are subject to change. This discussion is not tax, legal, estate planning or USAA product advice and is unique to the member only. The law concerning tax and retirement plans is complex, penalties are severe, and the laws of your state may differ. Consult with your tax, legal or estate planning professional regarding your specific situation.

Examples given are hypothetical illustrations and not necessarily an indication of the benefits or features of any USAA product.

This material is for informational purposes. Consider your own financial circumstances carefully before making a decision and consult with your tax, legal or estate planning professional. Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP® and CERTIFIED FINANCIAL PLANNER™ in the United States, which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements. Financial planning services and financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California, License #0E36312), a registered investment adviser and insurance agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a registered broker dealer.

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