Before You Buy a Home, 4 Essentials to Have

borrower commitment concept
ShutterstockYou can take some of the uncertainty about whether to buy a home if you make sure you allow for some critical factors.

By AJ Smith

Buying a home can be very exciting. But it can also be scary if you're not sure if it is the right decision for you and your family. Many factors go into whether it makes more sense to buy or rent. Here are four things you should have before you take the plunge into homeownership. If you have them, buying may be a smart move.

1. An Emergency Fund: If you have avoided or paid off debts, your credit is healthy and you are saving for retirement, you may feel good about your financial situation. Before buying a home though, it's important to go another step further: Focus on building up an emergency savings fund.

While everyone should really have an emergency fund to cover unexpected costs, it's especially important to homeowners. This should be in addition to the money you plan to use as a down payment. If you have enough liquid cash to cover three to six months of your living expenses, you are much more prepared for homeownership. This way, in case your steady income is interrupted, you can still afford mortgage payments while you get back on your feet.

2. A Proven Ability to Stick to a Budget: A track record of maintaining a budget can be a good sign. Since you already have a budget, try adjusting it to fit your new financial life as a homeowner before you buy. This should include mortgage payment, utility bills, homeowners insurance, property taxes, maintenance and upkeep costs. It's a good idea to even try living on that new mock budget for a few months. If you can do that comfortably, it may be a good time to buy.

3. A Steady Income: With mortgages usually 15 to 30 years in length, buying a home is a serious long-term financial decision. When calculating how much house you can afford a consistent income that covers monthly payments and miscellaneous home expenses is important. You may want to consider your other goals beyond buying a home. This may include how your financial situation will be affected if you plan to go back to school, start a family or change careers in the near future.

It's important to keep in mind the average time it takes to recoup your buying and selling costs is three to five years. If you sell before then, you risk losing money on the deal, so it's good to look at buying a home as a long-term commitment.

4. A Good Credit Score: When you go to a lender to apply for a mortgage, they will also look at your credit score in addition to your income. It's important to know where you stand before you actually apply for the mortgage, since there may be incorrect information on your credit reports that you can correct. And since your credit score will be a major factor in determining not only the interest rate you'll qualify for, but also whether a lender can even lend to you. (You can check your credit reports for free once a year -- here's how -- and you can see two of your credit scores for free on