The Homeowner's Overview

Owning a home is a big decision, and it may not be for everyone. The process of buying a home takes planning and patience. The process can be confusing because there are many items to consider. Plus, many unfamiliar terms are used that the first-time home buyer may not know. To learn more about the steps to buying your own home, contact a nonprofit housing agency, or read 100 Questions & Answers About Buying A New Home, offered by the Federal Housing Administration.

To determine if you are ready for homeownership, you must consider the advantages and disadvantages.

Advantages:
  • Feeling a sense of ownership. Many people like the security and peace of mind that owning their own home can bring. People who own their home know that as long as they continue to pay their mortgage and bills, no one can make them leave.
  • Stable housing costs. For renters, monthly payments may go up every year. Homeowners can choose a "fixed rate" loan that keeps the mortgage payments the same throughout the repayment period.
  • Appreciation. Houses often appreciate—or increase in value—over time. When you sell your house after living in it for many years, you can make a profit.
  • Tax benefits. Homeowners usually can claim the interest they pay on the mortgage of the home they live in, allowing a deduction in federal income tax at the end of the year.

Disadvantages:

  • Requires increased responsibility. Homeowners must pay for property taxes, homeowners' insurance, utilities, and maintenance. You must make your monthly payments regularly to keep up your good credit rating and avoid having the lender take back your house—a process called foreclosure. In addition, homeowners are in charge of all the repairs and maintenance.

  • Commitment to a community. Most lenders advise that you might not want to buy a house if you think you may move in the next year or two.

There are general qualification guidelines that a lender will use to assess a loan application, including:

  • Steady job history (two or more years)

  • Good credit history

  • Money for a down payment and closing costs

  • The monthly housing costs (including mortgage payments, property taxes, homeowner's and mortgage insurance and homeowner's fees) should total no more than 28 percent of your monthly gross income

  • The monthly housing costs plus other long-term debts such as payments on car loans, child support, student loans and other installment debt (debts with more than 10 months left to pay) should be no more than 36 percent of your monthly gross income

Everyone's financial situation is different, so there is some flexibility in these guidelines. However, only you can decide if you're ready to buy a home.