by Richard H. Fogg, CFP®

Buying your first home is one of the biggest investment decisions you’ll ever make. So how do you know if it’s the right time to venture into home ownership? You can start by answering these seven questions.

1. How long will you be in the area?

Because of the transaction costs that come with buying and selling a home, it typically takes three to five years to break even. If you sell any sooner, you could end up losing money – even in a rising market. If you do make a profit, you’ll have to pay capital gains taxes if you’ve owned the house less than two years. Assess whether your circumstances will enable you to stay put long enough to make purchasing a home worthwhile.

2. How much can you afford to pay?

As a rule of thumb, your mortgage payment shouldn’t be more than twenty-five percent of your gross income and your total monthly debt shouldn’t exceed thirty-three percent of your gross income. Keep in mind that your principal and interest aren’t the only costs associated with home ownership. You’ll also incur additional expenses, such as:

  • Utilities: water, gas, electric, sewer, garbage, and association fees (if applicable)
  • Homeowner’s insurance
  • Property taxes
  • Maintenance costs: interior and exterior repairs, and equipment
  • City assessments

Because these charges can add hundreds of dollars to your monthly expenses, make sure to consider your total costs to avoid an uncomfortably tight financial situation or overextending yourself.

3. What’s the housing market like in your area?

The real estate market differs by city, state and region. Compare the costs of renting and buying to determine which makes the most sense in your situation. Depending on where you live, one option may be more favorable than the other.

4. Can you cover the down payment?

Most traditional mortgage brokers require that you have at least a twenty percent down payment to avoid Private Mortgage Insurance (PMI). If you don’t have enough, PMI will typically cost between 0.5 to one percent of your entire loan amount every year. For example, if you purchase a $175,000 home at a one percent insurance rate, it adds just over $145 a month to your expenses. Keep this in mind when calculating what you can afford.

5. What’s your credit score?

If you’re not sure, you can order a free credit report from a reputable credit agency such as Equifax, Experian or TransUnion once every twelve months. Your credit score is important because when a bank is deciding to loan you money, they want to know that they can trust you to pay them back. If your credit score is good, you can breathe easy. If it’s not, take action as quickly as possible to improve it. If there are any errors on your report, make sure to get them corrected so they don’t negatively impact your ability to qualify for a loan.

6. Are your financial documents in order?

When you apply for a mortgage you’ll need to provide several documents such as:

  •  W-2 or 1099 income statements from the past two years
  •  Current year profit-and-loss statement  (if you’re self-employed)
  • Federal tax returns for the past two years
  •  Bank and investment account statements for up to the past three months
  • Recent pay stubs and proof of other income

Since it can take time to pull all of this information together, start sooner rather than later. Also, always provide every page of a document, because lenders will want to see every page even if it’s blank.

7. Do you have an emergency savings fund?

Most financial professionals recommend saving enough to cover three to six months of your living expenses in case an unexpected event such as a job loss, illness or injury prevents you from earning an income. An emergency fund can also help you cover unexpected expenses, such as a broken appliance or a plumbing emergency.

For help assessing your financial situation to determine if purchasing a home is a good choice for you consult your financial advisor. Your advisor can help ensure that your decision is in line with your short and long-term goals and budget.


Richard Fogg, CFP®, and his team know clients appreciate and value their unique individualized approach, experienced advice, and the outstanding level of personal service they receive. If you are looking for a financial advisor and a relationship based on loyalty and knowledgeable advice, they welcome the opportunity to meet and discuss your specific situation confidentially.

Fogg & Associates, Platinum Financial Services® practice of
Ameriprise Financial Services, Inc.

12626 High Bluff Drive Suite 450, San Diego, CA 92130
Phone: 858-693-7556 • Fax: 858-408-2961

Ameriprise Financial and its representatives do not provide tax or legal advice. Consult with your tax advisor or attorney regarding specific tax issues. Brokerage, investment and financial advisory services are made available through Ameriprise Financial Services, Inc. Member FINRA and SIPC. Some products and services may not be available in all jurisdictions or to all clients.

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