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All over the country, homes are selling like crazy. They’re being snatched up as soon as they go on the market, and homebuyers are willing to pay more to get the home they want. In fact, you can probably name several friends who are looking to buy a home in the next few months.
Conditions in the housing market have changed so quickly that it’s easy to get caught up in the frenzy and catch house fever yourself. But before you hop on that bandwagon, think through these three reasons why now may not be the time to buy a home.
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1. You’re in Debt
If you have any debt, your focus right now is to pay it off. Current statistics show the average American household has more than $15,000 in credit card debt, shells out 8–11% of their income for car payments, and owes more than $32,000 in student loans. Add the average monthly mortgage payment of more than $1,000, and you’ve got a recipe for bankruptcy. If you want to buy a home and have peace of mind, pay off your debt before you take the next step toward homeownership.
2. You’re Not Prepared for the Unexpected
Following the Baby Steps, once you’re out of debt, it’s time to build your emergency fund of three to six months of expenses. Now you’ll have the cash to take care of unplanned expenses (like a storm-damaged roof) or pay the bills, including your mortgage payment, if you lose your job. It’s one extra bit of insurance against Murphy—the idea that whatever can go wrong will go wrong.
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3. You Don’t Have a Big Enough Down Payment
While Dave prefers you use the 100%-down plan and pay cash for a home, a conservative 15-year mortgage with a payment that’s no more than 25% of your take-home pay is also an acceptable option. You should pay at least 10% down, but 20% is even better. With a 20% down payment, you’ll avoid private mortgage insurance costs, which can add $1,800 a year to the payments on a $200,000 mortgage. You can start socking away money for your down payment after you’ve built your emergency fund.
You can see how dealing with any of these three issues would make homeownership a struggle. If your goal is to buy a home, make it a priority to overcome these obstacles and you’ll be on your way to owning your home the right way.
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Once you’re ready to start shopping for homes, work with a real estate agent who appreciates the sacrifices you’ve made in order to become a homeowner. Dave’s real estate Endorsed Local Providers (ELPs) are Dave fans just like you and will help you get a great deal on your new home. Find your ELP today.