8 Signs You Are Ready to Buy a Home
When you rent, you have more freedom to move whenever you want without any of the responsibilities of homeownership. However, at one point or another, people yearn for a place to call their own. Purchasing a home is a great means to build up financial security when paying down the mortgage; your home equity will be built up, and years down the road, it will be handy as an economic resource. The combination of the high-income prices and steep mortgage rates of today won’t work in your favor. High rates will mean monthly mortgage payments can be a big financial struggle.
In this article, we will discuss eight signs that will determine if you are prepared to buy a home.
1. The Rent is Rising
Rent prices can be just as expensive as mortgage payments, especially with the added downside of rising every year. Rising rent can make it difficult to budget properly for monthly housing costs to save for bigger financial goals. When paying your rent starts to feel like it is turning into a bad investment, and you want to build equity for your future, you might want to start thinking about a mortgage.
2. You Have a Great Credit Score
Some renters cannot make the immediate jump into homeownership because they might not qualify for a mortgage. Having a low credit score is a common reason why you aren’t qualifying for a mortgage. A history of making late payments or too much debt can hurt your credit score. A sign that you are ready to take on homeownership is if your credit score is healthy. Borrowers with a credit score of 500 can qualify for home loans; they will be subject to making a larger downpayment while paying higher rates.
3. You Have Manageable Debt
A big thing that lenders look at when screening mortgage applications is the debt-to-income ratio or DTI. This will evaluate your monthly income, the higher the the DTI, the more risk you pose to the lender, while a lower DTI will allow for wiggle room within your budget to set money aside for home repairs and different surprise expenses.
4. A Downpayment and Closing Costs can be Afforded by You
First-time homebuyers won’t come into a purchase with proceeds from another home to fund a downpayment, which is the main reason why a downpayment is a big hurdle toward the goal of homeownership. A downpayment will require a percentage of the price of the home and can vary depending on the type of home loan that you get. For conventional loans, 20% down is typically required to get around funding private mortgage insurance. Buyers should always be prepared to pay for closing costs, which can run anywhere from 2% to 5% of a property’s sale price. The good news? Many of the costs can be entirely negotiable.
5. There is Enough Money Set Aside for Maintenance Purposes
If a pipe bursts or the HVAC system goes out in a rental, you don’t have to worry about making a payment to fix it, as it is the responsibility of the landlord. The same will go for property taxes and routine maintenance inspections. When you are the owner of a home, however, the costs will become your responsibility, which is why it is important to know if you have enough money set aside to handle all the extra expenses.
6. You Just Went Through a Big Life Change
Renters decide to purchase a home after a big life change, like getting married, having a child, or relocating for a new job. It is just fine to buy a house after a major life event; we recommend avoiding major changes, such as applying for a new line of credit, while closing. A lender will note any changes to your financial situation, a change can be responsible for causing the mortgage application to be rejected.
7. You Have a Stable Lifestyle
Purchasing a home will involve plenty of upfront costs that can take years to recoup. If you are anticipating moving before you can fully recover from those, homeownership might not be the best choice for you. A renter who is financially ready to buy a house should have job security. Having a stable job to buy a house will mean having a stable income to make all the necessary payments, especially on a mortgage. This is true, especially if a recession is looming overhead.
8. You Know Exactly What You Want
It is always smart to have a general idea of the type of neighborhood that you want to call home and the type of home that you can see yourself living in for decades to come. Houses, townhomes, condominiums, and duplexes all pose as options, and each comes with its considerations. If you buy a condo, you won’t have yard work, but there will be a HOA fee in addition to mortgage payments. It is important to understand what you need and what is more important to you.
Bottom Line
Are you ready to leave behind renting and get into the role of homeowner? Before you begin your search for homes for sale, shop around for the best lenders and get preapproved for a mortgage first. Preapproval will help you know how much house you can afford and what loan program is best for your situation. Ensure that you can reach all other financial goals that you have set up for yourself, and don’t let a mortgage prevent you from paying down credit cards or student loans or building up your savings account. Once you decide on a property, a trusted real estate agent can help you put together a great offer, negotiate with the seller, and guide you through the closing process.