6 Signs You Are Ready To Purchase A Home

Are you ready to purchase your first home? Though it may be tempting to jump right into it, take a second and consider the commitment, costs, and journey. Purchasing a home can be a daunting task, but here are 6 signs that will help you know if you are ready to start the home-buying process.

1. You Have Good Credit

You probably already know that a good credit score can be very beneficial in the financial world. Your credit score plays a major factor in the home-buying process and influences what kind of loan you can get. If you have a good credit score, mortgage lenders are more likely to trust you as a borrower. The higher score you have, the less of a risk you are to them because you have proven experience paying back loans. A credit score above 720 is usually considered excellent and will get you the best home loan interest rates, making your monthly payments lower. Meanwhile, low credit scores result in higher interest rates on your mortgage. Make sure to monitor your credit score to see what type of loans you qualify for.

2. You Have Stable Income

Having enough money to cover the down payment and closing costs of a house is one thing, but without a stable income, you put yourself at jeopardy. Remember, purchasing a home is not just a one-time big expense. Homeownership comes with the responsibility to continually pay monthly expenses and cover any other issues or repairs that suddenly come up. Some common house repairs include:

  • Foundation Repair (Avg. cost - $4,500)
  • Electrical Issues (Cost varies)
  • Roof Repair (Cost varies)
  • Water Damage (Avg. cost – $3,500)
  • Heating or A/C (Avg. cost – $350)

Owning a home is a big financial commitment that lasts for 15-30 years, depending on your loan term, so make sure to consider what your future holds and how you will afford your home.

3. Your Debt Is Manageable

How much debt do you have? Is it becoming unbearable? Your debt-to-income ratio (DTI) will show you how your debt compares to your income every month. The more debt you have, the less appealing you will be to lenders. However, a lower DTI will make you look safer to lenders and allow you more wiggle room in your budget to cover the unexpected expenses that come up when owning a home. Utilize this DTI calculator to figure out yours! If you think you have too much debt, try paying it down with one of these strategies.

4. You Have A Down Payment

Before you start making monthly payments on a home, you will likely have to make a large down payment. A down payment of at least 20% can give you lower mortgage rates on your home and eliminate PMI (Private Mortgage Insurance). In some instances, if you meet certain requirements, you can get a down payment as low as 3-5%. Both options have their pros and cons so think about your present and future, and what will work best for you. Some mortgage types you could utilize include:

USDA

The United States Department of Agriculture (USDA) home loans are mortgage loans offered that require no minimum down payment to rural property owners in the U.S. In order to qualify for USDA loan, they typically require individuals to have a certain income level and to live in a rural location in order to qualify. These requirements will also differ from state to state.

FHA

The Federal Housing Administration (FHA) provides loan insurance to expand homeownership opportunities for those who may find it difficult to obtain loans otherwise. Some FHA requirements include:

  • Carry mortgage insurance
  • Debt-to-income ratio of no more than 43%
  • Credit score of at least 500
  • A down payment of at least 3.5%

Conventional Loans

Conventional loans are a type of home loan that is not backed by a government agency. These loans typically cost less than FHA loans but can be harder to get. The requirements for conventional loans are:

  • Credit score of at least 620
  • Debt-to-income ratio of no more than 45%
  • A minimum down payment of 3% (varies)
  • A property appraisal verifying the home’s value and condition

No matter the type of mortgage you secure, it is important to make sure you have enough money for some type of down payment.

5. Understand Closing Costs & Inspection Fees

After saving for your down payment, you will need to make sure you can also pay closing costs. Closing costs incorporate all of the final fees that need to be paid on closing day. Inspection fees are another charge to be expected. To avoid panic about these fees on closing day, prepare yourself with the knowledge and tools to be ready when that day comes.

6. You Can Afford The Monthly Expenses Of Homeownership

To fully understand what it means to pay for a home, you need to look beyond just the down payment and monthly mortgage. Whether it is monthly expenses for the home, or repairs and maintenance needs that come up, you need to be prepared and have savings to cover the unexpected. Some of these housing costs may include:

  • Property taxes
  • Utility expenses
  • Appliance failures
  • Large system issues (Ex. HVAC, plumbing, water damage, etc.)
  • Homeowners insurance

Home ownership is a major responsibility in your life, so you want to make sure you are prepared and ready to take on the risks as well as the rewards!