A very happy guy and girl holding keys to their new Scottsdale home

Buying your first place or upgrading to a new one is super exciting, but it's also a major financial commitment that shouldn't be rushed into. Trust me, as someone who has been through the home-buying process many times, I know how tempting it can be to get caught up in the thrill and ignore some of the bigger financial implications. But taking the time to really evaluate if you're truly ready is so important. Otherwise, you may find yourself drowning in regrets and costly stress down the line.

Purchasing a home is likely one of the biggest investments you'll ever make. It's a long-term commitment that will impact your finances for years, maybe even decades to come. And if you're not adequately prepared, the costs and responsibilities of homeownership can bring a world of stress and regret. Trust me, that's the last thing you want looming over your head when you should be enjoying your brand-new digs!

So in this post, I want to share some insight into knowing if now is truly the right time for you to take that leap into homeownership. Yes, I'm a Realtor® writing this. Shouldn't I be trying to get you to buy a place - any place? If you're ready, willing and able, sure. But just because you have been pre-qualified by a lender doesn't mean you're going to be comfortable with a mortgage and the responsibilities, many of them financial, of owning a home.

We'll look at some of the financial pitfalls many homebuyers face, as well as actionable tips to ensure you're setting yourself up for success if you decide to move forward with a purchase. Because at the end of the day, being a homeowner should be exciting, not a constant source of anxiety!

The Reality for Many Homebuyers

A double sign showing dreams and reality

Let's start by looking at what a lot of recent buyers are up against in today's market. You've probably heard horror stories about folks who bit off more than they could chew with their mortgage or ended up house-poor because of hidden costs they didn't plan for. Well, those cautionary tales exist for a reason! According to a survey by Clever Real Estate, a whopping 43% of homeowners who bought in 2023 or 2024 have struggled to keep up with their monthly mortgage payments. Yikes! This could mean that we're going to be experiencing another bout of short sales and foreclosures in the future.

There are a few key reasons so many found themselves in this financially stressful situation:

  • Nearly 4 in 10 buyers ended up purchasing a home that was over their planned budget.
  • Close to half took on additional debt after they closed to keep up with their prior lifestyle.
  • A full 50% had to accept a higher interest rate than they had originally planned for.

When you look at those stats, it's no wonder so many new homeowners found themselves feeling "house poor" and overwhelmed trying to make ends meet. Between the monthly mortgage payment itself, additional debt payments, fluctuating interest rates, and all the other expenses that come with owning a home, the costs can really start to pile up quickly if you're not prepared.

Sidestepping those pitfalls is totally possible though! You just need to go into the home-buying process with a realistic plan and clear expectations. Having the right preparation and mindset is crucial for ensuring your first years of homeownership are filled with more excitement than anxiety.

Avoiding Homebuyer's Remorse

A hand holding a house key to a Scottsdale house with little frowning faces and money signs

Of course, none of this is to say that buying a home is a terrible idea and you should just keep renting forever! I hated renting. I couldn't wait to buy my first home. Homeownership has so many amazing long-term benefits when you go into it with a solid financial foundation. The key is taking the time to properly assess your current finances and make a thoughtful, realistic plan.

So let's go over some essential financial tips that will help set you up for a smooth, satisfying home purchase when the time is right for you.:

Tip #1: Budget, Budget, Budget!

A model of a Scottsdale home with money and ideas in the background

Knowing how to budget for homeownership - truly understanding what you can comfortably afford - is absolutely crucial. And I'm not just talking about the sticker price of the home itself. You need to factor in all the additional monthly expenses like:

  • Potential HOA fees - these come with most condos/townhomes and a high percentage of homes in Scottsdale and the Greater Phoenix area. These fees can increase annually.
  • Homeowner's insurance - all insurance has been going up, and some residents are facing the unpleasant surprise of their homeowner's insurance being canceled in certain areas.
  • Property taxes, which can change year-to-year.
  • Utilities and other carrying costs, especially if you are a prior renter who didn't have to pay utilities.
  • Routine maintenance and repairs.

Speaking of maintenance, you'll also want to bake in a little wiggle room for those inevitable surprise costs that pop up when you're a homeowner. A busted appliance here, a leaky roof there - those expenses can seriously throw off your budget if you're not prepared.

Pro tip: When calculating what you can afford, focus primarily on the estimated monthly payment, not just the total purchase price of the house. Budget based on a monthly payment range you know you can manage comfortably.

And don't forget - there are also a number of expenses you need to have sufficient savings for before even looking at homes:

  • Closing costs - check with your lender to see how much you will need to budget.
  • Down payment (which can vary based on your financing).
  • Inspections and appraisals - these are buyer costs.
  • Moving costs - unless you're doing it yourself the cost of moving today can be shocking.

The last thing you want is to drain your rainy day fund or go into debt just to cover the upfront costs of buying a place. So take a good hard look at your current finances and make sure you have enough set aside for a down payment and all those additional fees.

Tip #2: Get that Credit Score Sparkling

A 785 credit score

Your credit score plays a huge role in the mortgage rate and terms you'll qualify for. So it's absolutely essential to get your score in tip-top shape before applying for financing. Read "Get Your Credit Score in Shape" to get some tips.

The New York Fed states that in the first quarter of 2024 the median credit score for new mortgage borrowers was 770. What does this mean? Well, it signals that lenders these days aren't just handing out home loans to anyone with a pulse like they were in the years leading up to the 2008 housing crisis. They've got much higher credit standards to protect both the borrowers and the banks themselves.

The takeaway? You'll want to work on bringing up your credit score as much as possible to increase your chances of qualifying for the best rates and terms.

How do you do this? A few key steps:

  • Check your credit reports regularly and dispute any errors bringing your score down.
  • Pay all bills on time every month - payment history is the biggest factor impacting your score.
  • Pay down existing debts like credit cards to lower your credit utilization.
  • Avoid opening too many new lines of credit at once in the short term.

Most homebuyers don't realize that the lower their credit, the higher interest rate they might have to pay. By optimizing your credit, you could potentially save thousands over the life of your mortgage. It's an essential step that first-time buyers often overlook!

Tip #3: Keep Debt to a Minimum

A couple with a laptop, paperwork, and holding a charge card

Speaking of debt, managing those balances is another crucial piece of preparing for homeownership from a financial perspective. Why? Because the more debt you're already juggling in the form of student loans, credit cards, auto payments, etc. the harder it may be to comfortably afford your new mortgage payment on top of everything else.

When you apply for a mortgage, lenders look closely at your debt-to-income ratio to gauge your ability to take on a new, sizable monthly payment. The higher that ratio is, the bigger red flag it becomes.

In fact, let's look at one of those startling stats from that Clever Real Estate report: 44% of homeowners who purchased in 2023 or 2024 took on additional debt outside of their mortgage shortly after in order to maintain their lifestyle.

Let that sink in for a second - nearly HALF of people went into even more debt soon after making what was likely the biggest financial commitment of their lives to that point. That's not a road you want to go down if you can avoid it!

So what's the solution? Get a solid handle on your existing debt well before you start the homebuying process. Identify areas where you may be able to pay down balances more aggressively. See if consolidating makes sense to simplify and hopefully decrease your monthly debt burden. You may even want to hold off on buying for another year or two to get that debt situation fully under control first. Maybe interest rates will be lower then.

The bottom line: Entering into a mortgage when you already have high debt levels is just asking for trouble. It's a recipe for living paycheck-to-paycheck and constant stress about juggling payments.

Tip #4: Have a Gameplan for Your Future

A gameplan for the future of buying a home in Scottsdale

Here's an important question you need to ask yourself: How long do you plan to live in this home you want to buy? Like, for real - give it some deep thought.

If the answer is "I want this to be our forever home where we raise a family and one day retire," then that's one thing. The financial considerations there are much different than if your response is more like "Eh, probably just 5 years or so before we try to upgrade or move for work."

You see, homes often need a little time to accrue sufficient equity and increase in value enough to make it worth the transactional costs of buying and selling. If you only plan on staying put briefly, those closing costs may cancel out any financial gains - or even put you in a small hole when all is said and done.

Additionally, if your timeframe is more open-ended or subject to change based on job situations, growing family needs, or other unforeseen circumstances, that added uncertainty can make taking on a long-term mortgage pretty dang risky. What if you have to move shortly after purchasing and rent out the place instead? There is a whole separate set of financial impacts to consider.

So get clear on your future plans to the extent that you can. And think about how taking on a mortgage right now could play into those long-term goals. It may make sense to delay your homeownership dreams for another year or few if your personal situation is likely to shift dramatically soon.

Signs It May Not Be the Right Time For YOU

A street sign saying decision, right, wrong

Okay, I know that was a lot to take in! At this point, you may be wondering if homeownership is even in the cards for you right now. There's no shame in putting it off until you're truly ready - in fact, that's the wise move both financially and for your peace of mind.

Here are some red flags to watch for that could mean now isn't an ideal time for you to buy:

• You have a high debt-to-income ratio from things like student loans, car payments, and credit cards. Adding a mortgage on top of that will likely be a stretch, and you might not even qualify. Even if you do, you will probably be living to pay your mortgage.

• Your job might not be reliable and there is a possibility it could change substantially in the next couple of years due to job transitions, going back to school, etc. Lenders want to see reliable, steady income to feel confident about your ability to make those mortgage payments.

• You don't have much in the way of savings built up yet. Somehow scrambling together just the bare minimum down payment but nothing for a cushy emergency fund is risky. Keep in mind, it is suggested that you always keep 3-6 months of all monthly debt in savings for an emergency. Six months is the best amount to aim for.

• Your living situation feels very temporary and you'll probably need to move locations again within the next 2-3 years. The transactional costs of buying and selling that quickly make renting a better option. Phoenix has been receiving an influx of new residents from all over. Not all of those people end up staying long-term. If you're moving to a new state or area because you think you're going to love the lifestyle, you should probably rent for a year to see if it's what you expected.

If any of those scenarios ring true for you, it's okay! Renting for a while longer until your finances and life settle into a good groove is the prudent choice. Don't feel pressured by societal expectations or peers to force a home purchase that isn't a good fit for where you're at.

The reality is, buying a home at the wrong time and stretching way beyond your means is what leads to massive regrets, financial stress, and even foreclosure nightmares in the worst cases. As exciting as homeownership is, it has to make sense for your current circumstances and future plans.

So be honest with yourself about what you can truly afford and what your priorities are right now. If the time isn't right, have patience and keep setting yourself up for success. Establishing healthy financial habits, saving diligently, and making mindful choices about debt will ensure you're in an amazing position to buy your dream home when the stars do finally align.

It's bad enough to lose your home due to a short sale or foreclosure, but your credit will also be affected. This could make it difficult to rent a place or buy a car with credit in the future.

Ready to Take the Leap? Trust Your Instincts and Go for It!

Happy buyers getting a key from their Scottsdale real estate agent

Just imagine how incredible that moment will feel when you get those keys in hand, knowing you did all the right preparation and made a smart investment that will bring you joy and security for years to come. That's what we're working towards, right? The dream of happy, worry-free homeownership is built on the foundation of your financial readiness. Stay the course, my friend, and you'll get there!

Call Judy Orr at 480-906-1500 if you'd like an experienced, full-time agent who will work specifically for you and keep your best interests in mind.

Posted by Judy Orr on
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