For many people, owning a home is the American Dream. But how do you know if you are ready to buy? It’s a complicated question. You’ll need to conduct an honest review of your finances. You’ll want to study up on key costs and benefits. And you will have to assess your own emotional needs and future lifestyle preferences.
Homebuying isn’t for everyone. Is renting for you?
Homeownership is not for everyone. More than 43% of Sacramentans are renters, for both financial and personal reasons. Paying rent doesn’t mean you’re throwing money out the window. You are paying for a roof over your head (a roof you’ll never have to patch on a rainy night).
That said, homeownership is usually a solid investment in your family’s future.
If you don’t get in over your head, homeownership gives you an asset that will increase in value over time. You will have wealth in the form of property to pass on to future generations.
What life changes are on the horizon?
In California, most first-time buyers are in their mid 30s with steady jobs, who have decided to put down roots. If you’re a two-income couple with a child on the way, this may be your moment. But if your job status isn’t solid, or you think you may want a new job in a new city in the next few years, you should remain a renter.
You need to do a basic analysis of your finances
Your first steps could simply involve running some numbers on online mortgage calculators and reading various online real estate guides. Also, you can ask friends and family who own homes what it took financially (and emotionally) to get into that home. But these sources provide only general information. You will then want to …
Call a home loan officer for a chat
A mortgage broker, credit union representative or bank loan officer can give you your first solid sense of whether your financial position is strong enough to buy a house, as well as what size loan you might qualify for. You may learn that you’ll need to get your credit score up a bit or get a higher-paying job.
Keep costs in mind — both upfront and long-term
The main upfront cost involves a cash down payment of anywhere from 3% to 20% of the home price. A 20% payment is often preferable, but it’s steep. It amounted to $114,000 for a median-priced home of $568,000 in Sacramento County as of mid-2022.
Long-term, you not only will pay a monthly mortgage but you’ll pay property taxes, insurance, maintenance and upgrade costs. The Sacramento County property tax on a median-priced house in mid-2022, for instance, was about $7,000 annually.
And remember the hidden costs of homeownership
Many Sacramento homeowners also must pay several thousand dollars annually in special levies and assessments for flood control, parks, street lights, local libraries and schools, often referred to as Mello-Roos community facilities district taxes. These costs vary and usually are higher in newer neighborhoods. (The Sacramento County assessor and tax collector websites will show you those costs for a particular home.)
Talk to a couple of real estate agents
Once you have an idea of what you can afford, talk with some real estate agents. They have information on what the market is like, which neighborhoods might be suitable for you, and what you will have to do to succeed.
Do you gain by waiting for the real estate market to change?
Some say a recession may be coming. So why not wait for prices to drop? You could do that — but it’s guesswork. “I don’t think you can really time the market in any way,” says Rob Wassmer, an economist and public policy professor at Sacramento State University. If you want to be a homeowner and are ready to plant roots, Wassmer suggests, “set your price bumpers” and forge ahead.
This story was originally published June 22, 2022 6:30 AM.