FDIC-Insured – Backed by the full faith and credit of the U.S. Government5 Signs You're Ready to Buy a Home
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You don’t have to be looking at mansions to know that buying a home is a HUGE move. It’s a decision that will not only impact your financial life but also your lifestyle and some of the freedom you now have. You may even be wondering: Am I even ready for homeownership? It’s an important question to ask yourself, because the decision to buy a home may likely be one of the biggest choices you’ll make in your lifetime.
Here are five signs to help you determine if you’re ready:
- You have a good reason to buy. Maybe you’re tired of rising rent prices. Or you want the opportunity to build financial security and equity. It could be that you’re thinking of starting or expanding your family and need a bigger place. Whatever the reason you want to buy a home, make sure it’s a valid one and that you’re not just buying because you think it’s what you’re supposed to do.
- You have a steady income. Lenders will look closely at your income and work history to ensure you earn enough money to support a mortgage payment. In general, make sure you have at least two years of steady employment and a steady paycheck before you apply for a mortgage.
- You have savings. To purchase a home, you’ll need money for the downpayment, which is usually between 3% - 20% of the purchase price. With some programs, you may be able to purchase a home with little or no money down, depending on your financial situation. Just keep in mind that the more money you put down, the lower your monthly payments will be.You’ll also need money to pay closing costs (fees charged by lenders), which run between 2% to 5% of your loan amount, depending on the lender and the program you choose.Lastly, you’ll need money set aside for expenses that come with owning a home, such as ongoing maintenance and repairs.
- You have your debt under control. Lenders look at your debt-to-income ratio (DTI), which is simply a mathematical calculation that considers the amount of money you owe versus the money you make. To determine your DTI, simply add up all your monthly debt payments (mortgage/rent, real estate taxes, insurance bills, car, credit card, and other loan payments) and divide the total by your total monthly gross income. In general, lenders like to see a DTI that’s less than 36%.
- You have a good credit score. A credit score is a key factor used to determine how likely you are to pay back a loan. The better your credit score, the more likely you will qualify for a mortgage and the better rate you’ll get.To maintain a good credit score, pay your bills on time and pay down any revolving credit you owe, such as credit card bills. You should also check your credit report for errors that could lower your score.
There are so many rewards of owning a home, but before you cross the threshold to homeownership, make sure you’re ready for it.