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Time To Buy A House?

The economy is beginning to recover, and the housing market is showing some improvement.  If you have been hesitant to venture into the housing market, now might be a good time before interest rates and home prices rebound too much.

However, before you leap into the housing market, make sure you are adequately prepared financially.

1.  Do you have a 6 to 12 month emergency fund?  This may sound impossible, but the last thing you want is to take on the responsibilities of home ownership only to suffer a financial emergency and not have enough cushion.

2.  Can you make the monthly mortgage payment?  A good way to tell if you are ready for a monthly mortgage is to set aside how much it would be.  For instance, use Mortgage Calculator Canada (or United States, if you reside there), and calculate how much your mortgage payment would be.  (Remember, mortgage rates also affect how much your monthly payment will be, so use a site like MortgageRates.ca to see a range of rates.)  Let's say it comes out to $2,250 a month.  If you are already paying $1,450 in rent, set aside the difference of $800 between your rent and what would be your mortgage payment.  Do this for 6 months or more to see if you can comfortably afford the mortgage payment.  (Save the difference to be part of your down payment.)

3.  Do you have a down payment saved?  If you want to avoid the expense of private mortgage insurance, it is best to have 20% down.  If you don't have that saved yet, put all of your extra expenses on hold for 6 months to a year so you can generate a nice down payment.  Do without cable television, meals out and other luxuries, and you will find that you can generate money to save for a down payment rather quickly.
If you find you aren't yet ready for home ownership, don't despair.  

Rates are likely to stay low for at least another year, so you have time to make sure you are financially prepared for a home.   Then, and only then, will you enjoy a new home rather than being stressed about it.


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