Think you might be ready to buy a home but aren’t quite sure? It’s normal to be a little nervous. A home is a big commitment. But you also might be more ready than you think. Here are some signs that it might be time to take the plunge.
1. You Have A Steady Job
If you don’t have a steady job, forget about it. Buying a home is not for those who are in job limbo.
Of course, any job has uncertainties, but the longer you’ve been at a job or the longer you’ve been a business owner, the more likely it is that you’ll be able to secure a mortgage.
So if you’ve got a job and you plan on staying there for the next little while (or getting a comparable job), you’re probably ready to buy a home.
2. You’ve Got Savings (Including an Emergency Fund)
Homes always come with unexpected expenses. You can count on it. Plus, life comes with unexpected expenses, and you still have to pay your mortgage each month.
If you’ve been able to plan for unexpected expenses by putting some money into an emergency fund, that’s great! You just might be ready to buy a home. This means that you won’t be forced to pay for unexpected expenses with your monthly income (which you need to pay your mortgage and other bills).
3. You Have a Solid Down Payment
Gone are the days of having to put 20% down on a house, but you still need to put some money down if you’re going to buy a home. (Unless you’re lucky enough to get a VA loan, which is a 0% down loan. There are some community loan programs that offer 0% down options.)
Most loan programs require at least 3% down. The government’s FHA program requires 3.5% down. Buying can be just fine under those circumstances.
However, the more you can put down, the lower your monthly mortgage payment will be. And if you put 20% down, you’ll avoid the monthly mortgage insurance premium most lenders require when you put less than that down.
4. You’re Staying Put for a While
If you’re planning to stay in one place for a while, you may be ready to buy. If you stay for just a year or two, the costs of buying and selling the home will mean you’re likely to lose money on the home. Under those circumstances, you’re usually better off just renting.
This means owning the home three to five years, in most circumstances. Much like our friend the stock market, real estate is a long-term proposition.
5. Your Budget Has Some Wiggle Room
How would you feel if you bought your dream home but had to give up eating out, going on vacations, and going to the movies? You may decide you don’t want to own a home as much as you thought you did. You should still have enough money to enjoy life outside of your mortgage payment.
Many financial experts recommend not spending more than 30% of your take-home pay on housing, if possible. However, you should look at your own budget and determine what you’re comfortable paying after you account for your current payments and spending patterns. (This number may be entirely different than what the bank told you that you could afford.)
Taking a hard look at your budget means you can go into shopping for a home with confidence about how much money you can spend.
6. Your Goals Align with Buying a Home
Sure, you can afford your $2,000 monthly mortgage payments now. But what if you’re planning to have a baby next year and take some time off work? What if you’re planning on starting your own business and want to invest your own money? Will you still be able to afford your mortgage payment under these circumstances?
If not, it’s time to decide what your priorities are and whether or not those priorities go with buying a home.
7. Your Debt is Manageable
You don’t have to be debt free to buy a home, but if you have too much, it could hinder your ability to buy a home. Debt payments will eat up your monthly income and limit the amount a lender is willing to lend you.
If your current debt payments combined with the amount you want to borrow exceeds 43% of your monthly income (also called your debt-to-income ratio), you’ll be considered at high risk for defaulting on your mortgage. If you have too much debt, it’s best to pay some of it off before applying for a mortgage and looking for a home.
8. You Know There’s More than Sticker Price
If you think that the most important thing is a home’s sticker price, think again!
You’ll need to budget for essentials like property taxes, insurance, utilities, renovations, moving costs, and most important of all, maintenance. All of these expenses can add up to a hefty sum. (In most cases, banks will include property taxes and insurance in your monthly mortgage payment and then make those payments on your behalf.)
But in many cases, if you own the home long enough, buying is still a financially wise option.
9. You Have Good Credit
You don’t need a perfect credit score to get approved for a mortgage, but your odds are much better if it’s at least 640 or above.
Remember, the better your credit score is, the better the interest rate you’ll get and the less your monthly payment will be. So it pays to have good credit before you try to get a mortgage.
Are You Ready to Buy a Home?
Still not sure whether or not you’re ready to buy a home? We recommend sitting down with a mortgage lender. They can look at your paperwork and tell you what they think based on your financial records.
And if you are ready to buy, congratulations! Give us a call—we’re here to help you start the exciting process of buying a home right now.