Everyone dreams of owning a home at some point in their life. It’s a long term investment that gives you the freedom to make your desired renovations and modifications that would be impossible in a rented house.
With a homeownership rate of about 64% in the U.S, you definitely want to join the list of American homeowners. But are you ready to own a home? Here are top signs you are ready to invest in a new house.
You'll Stick Around
There’s no point of buying a personal house when you or your family won’t be living in it. If your lifestyle or work makes you move to different parts of the world, you don’t need to buy a house; you’re better off renting.
Buying a home is a good financial decision if you have found a permanent settlement for you and your family.
You Have a Good Credit Score
You’ll need a loan for a mortgage payment. But the lenders will request your credit report before deciding whether to give or deny you a loan.
With a score of around 640, you have higher odds of getting approved for a loan. If your credit score isn’t good enough, you’ll have to improve it by catching up on any late or missed payments.
Again, there’s a good chance you’ll qualify for a loan if you haven’t missed more than a single payment within the past 12 months.
You Have a Steady Job
After working in one company for several years, you've probably saved enough money and is financially stable enough to buy a house.
Your lender will look at your employment history. In general, lenders prefer to work with borrowers who have worked in the same company for at least two years. Steady employment with a steady salary means you can pay your loans without missing any payment.
If you don’t have a steady job, it can be a struggle to get a loan. But don’t worry as your lender may overlook your employment history if you have a better credit score and can pay a high downpayment.
You’ve Saved Enough for the Downpayment
Unless you qualify for a no-down-payment mortgage, you’ll have to pay for a down payment. The deposit is often higher because lenders believe that the higher the down payment on a loan, the lower the chance of defaulting.
Here are the requirements for a down payment.
• 3.5% for 203k and FHA Loans
• 3% to 20% for Conventional Loans
• 15% to 30% for Jumbo Loans
But can you afford the down payment? As you can see, the rates are high and can scare most hopeful home buyers from purchasing their dream house. If you’ve saved enough for the deposit, kudos.
You Can Afford Mortgage Payment
Your mortgage lender will use your Debt To Income (DTI) ratio to determine your ability to manage monthly payment and repay debt. The percentage of your gross monthly income going into your monthly debt payment is the DTI. It determines the amount of home you can afford.
A lower debt-to-income ratio shows you can manage your debts; therefore, a mortgage payment won’t overburden you. It’s recommended to keep the ratio below 36. Anything higher than that may render you unqualified for a mortgage.
If you can’t afford a new house, you can consider buying a fixer-upper house. They’re more affordable but requires renovation. Learn more here on the advantages and the considerations to make before buying a fixer-upper house.
You Have a Solid Emergency Fund or Savings
Well, unexpected things will always come up in life. If they do, your emergency fund or savings can sort them out as you continue to use your monthly income to pay for the mortgage and other monthly bills.
Should you lose your source of income, your savings will assist in sorting all your bills as you look for another income source. The emergency fund will cover the repair costs, especially when you don’t have a home warranty plan.
Therefore, before you buy a house, aim to set aside an income equivalent to at least one year of your monthly bills.
Buying Home Is in Alignment With Your Future Plans
Your future plans and goals should give you the freedom to pay for your mortgage. Some projects can eat into your monthly income and make you struggle to pay a mortgage loan.
For example, buying a car, planning for a big wedding, enrolling for further studies can all drain your finances and hinder your loan repayment. If you’re willing to postpone or abolish financially demanding aspirations until you finish paying the mortgage loan, you’re probably ready to buy a house.
You Already Know What You Want in a Home
If you want to buy a home, you’ve probably researched on what you can afford in terms of home features, house price, and mortgage payment.
Maybe you’ve already decided on the location or perhaps, the exact house you want to buy. If you already understand what you need to know about home buying, you’re a step ahead of most aspiring home buyers.
Knowing in advance what you’ll be getting into can help you overcome the emotional stress that comes with home buying.
You’re Financially Responsible
Owning a home comes with lots of responsibilities. You’ll have to forgo some of the things you love, save a lot, pay for repairs or renovations, and pay your loans without defaulting–all which require financial discipline.
If you can’t control your expenditure and lose most of your income to the non-essentials, you’ll find it difficult to pay for a mortgage.
Your Income Has Increased
A booming business, a new well-paying job, or a salary increment at your permanent job, may revive your desires to own a home. With a higher paycheck, you can cater for your monthly mortgage loans and still remain with enough to spend on other essentials.
Do You Feel Ready to Buy a New House?
Being ready is just the beginning of the long process of buying a new house. If you're unsure, use these pointers to determine whether a new home is a suitable idea for you at the moment.
Before you go, check out our blog for more insightful home and lifestyle articles.