When Is The Right Time For Me To Buy A Home?

3/21/2016

When is the right time for me to buy a home?

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Am I wasting money renting if I'm still building up my credit score?

Dear Kim,

I am 28 years old and would like to buy my first house. When I graduated from college 7 years ago, I had difficulty finding a job. As a result, I ran up very high credit card bills and also had $100,000 in student loans. The debt continued to mount and, with the addition of medical bills, I was overwhelmed and filed Chapter 7 Bankruptcy 2 years ago. I still pay my student loans, but I do not need to pay back the credit cards or medical debt. I got a great job about 6 months ago and would really like to settle down. My parents think I should wait because of my low credit score (580). I feel like I am wasting money renting. What should I do?

Thank you,
Donna, PA.

 

Dear Donna,

Congratulations on your job! It sounds as if things are looking up. You may not like my answer, but I am going to agree with your parents. I have several concerns with purchasing a home given your current situation. Your credit score is low, which does not mean you cannot buy a house, it just means that your loan may be more expensive. Unfortunately, a low credit score can equate to a sub-prime or non-prime loan. Sub-prime or non-prime loans are established on risk based pricing, which can translate to high interest rates and undesirable repayment parameters, such as a balloon payment.

I can understand your desire to own your own home, but at what cost? You have been employed in your new job for six months, which is not a very long time. You did not mention having a down payment to apply to the home purchase. I am also concerned about your high student loan debt payment and the addition of a mortgage payment. There are also additional costs such as taxes, insurance and home maintenance to consider.  Purchasing a home is an enormous liability. You need to be financially prepared. I would suggest that you meet with a certified housing counselor and receive pre-purchase housing counseling. The education you will receive on the home purchase process and costs associated with homeownership will be priceless. The counselor will also be able to guide you on how to improve your credit to enhance the loan options.

There is no shame in renting an apartment until you are better financially prepared for homeownership. There are benefits to renting, such as landlord required maintenance. I advise you to take some time and save money for a down payment and start a savings account for home repairs. I also recommend taking the time to improve your credit score, so that you can receive the best possible mortgage interest rate. Lastly, call a certified housing counselor for a pre-purchase housing counseling session. They have the knowledge and the skills to help guide you to your dream of owning your first home!

Good Luck,
Kim

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