Is it Time for Me to Buy a House? 8 Questions to Help You in Making a Decision
So you’ve been wondering, “Am I ready to buy a house?” recently. Homeownership is a significant achievement that many individuals want to achieve. When making one of the most important financial choices of your life, there are a number of considerations to consider.
You’ve come to the right place if you’ve been considering buying a home but aren’t sure if you’re ready. We’ve put up a list of questions to help you figure out if you’re ready to purchase a home. See how many you can say yes to and whether now is the best moment to start looking for a property.
DO YOU HAVE ENOUGH MONEY FOR A DOWN PAYMENT?
Despite popular belief, first-time homebuyers do not require a 20% down payment. An FHA house loan usually requires a minimum down payment of 3.5% to 10%, whereas a conventional loan typically requires a minimum down payment of 3 percent to 5%.
It’s important to realize, however, that the higher your down payment, the lower your monthly payments will be and the less interest you’ll pay over the course of the loan. Another disadvantage of a small down payment is the need to pay private mortgage insurance (PMI), which insures your lender in the event you default on your loan. If you put down less than 20%, you’ll almost certainly have to pay private mortgage insurance (PMI), which is added to your monthly mortgage payment.
DO YOU HAVE A SUFFICIENT EMERGENCY AND SAVINGS FUND?
While you may have saved enough for a down payment, don’t forget to factor in closing expenses, which may range from 2% to 5% of the home’s selling price. Also, during the house inspection, you may discover a few home maintenance concerns that you’ll want to address as soon as possible, such as a water main that is looking like it needs replaced or cracks in the walls or ceilings. This is where extra funds will come in helpful.
You should also have some emergency cash saved up. When you rent, you have the amazing opportunity to be able to contact your landlord anytime there is a problem with the property. So if your heater breaks down in the midst of winter, you won’t have to pay thousands of dollars to repair it.
Similarly, if your washing machine fails during a cycle, you won’t be liable for contacting a repairman. However, once you become a homeowner, you are solely responsible for all of your belongings. So, if you’re going to spend your resources on a down payment, put off buying a house until you have a larger safety net.
DO YOU HAVE A GOOD CREDIT SCORE?
Many potential home buyers are concerned that they may be unable to purchase due to a poor credit score. However, you do not need perfect credit to purchase a house, and there are several loans and first-time homebuyer programs available to buyers with less-than-perfect credit. Having said that, a better score will help you qualify for a lower mortgage rate, which will save you money in the long run.
“What credit score is required to buy a house?” is one of the most frequently asked questions by first-time buyers. While there is no written rule, a minimum credit score of 600 is likely to be required for approval. However, in order to qualify for the best rate, you should try and improve your credit score and wait until you have a score of 700 or better.
DO YOU HAVE CONTROL OVER YOUR DEBT?
Don’t worry, you don’t have to be fully debt-free to purchase a home. Most mortgage firms understand that it is unreasonable to expect borrowers to be completely debt-free these days, with student loans, car payments, and other expenses. They want to know that you’ll be able to cover your mortgage payment depending on how much money you have coming in vs how much you need to pay out to other obligations.
Lenders will consider your debt-to-income ratio, which is an estimate of how much of your monthly income goes toward debt payments. You can use a debt-to-income ratio calculator to get your current ratio. You can still be eligible for a mortgage if your debt-to-income ratio is at least 43 %.
HAVE YOU CALCULATED YOUR MONTHLY EXPENSES TO ENSURE YOU CAN AFFORD THEM?
To determine if you can afford the monthly expenses, you must first calculate your mortgage payment. An online mortgage calculator can help you estimate this, but buying a home is about much more than simply the mortgage payment. Other financial considerations for home buying may include:
- Insurance and property taxes
- If applicable, Home Owner Association (HOA) fees
- Household expenses (sewage, garbage, internet, etc)
- Utilities (water, electricity, etc.)
Before you plan to move from renting to purchasing a home, make sure you’ve done your homework and can afford all of the monthly expenses that come with being a homeowner.
DO YOU HAVE A STABLE SOURCE OF INCOME?
Regular work and income gives lenders how much house you can afford and are significant markers for mortgage qualification. Even if you can establish financial stability on paper, you should only purchase a home if you believe your income will stay stable for the years to come.
For most homebuyers, losing their job just after closing or moving into a new house is a terrible situation. So, if you’re worried about your income or work, hold off on purchasing a home until things calm down.
DO YOU NEED MORE SPACE?
While money is certainly a significant concern, there are many other things to consider while asking, “Am I ready to buy a house?” One of which is something we all seem to need more of right now – space.
With so many of us spending the majority of our time at home, do you really need a dedicated home office or an extra space for a home gym? You may like a larger backyard or a garden space. Do you have children or are you expecting a baby soon and require additional space? If this describes you, now is a good time to think about buying a house.
DO YOU PLAN TO REMAIN FOR A WHILE?
There is no rule that prevents you from moving soon after buying a house. However, as a homeowner, you will have the opportunity to accumulate equity. The longer you own your property, the more equity you accumulate and the more money you will likely make when you sell it. You should ideally reside in a property long enough to earn a profit. So, if you can’t commit to a place, rent until you’re ready to settle down.
Whether you are ready to buy a house is a personal choice that requires you to examine various aspects of your life, including your money, lifestyle, employment position, and long-term objectives.
But if you answered yes to all of the above, you could have an answer to the main question, “am I ready to buy a house?” If you’re still confused or have particular questions about your circumstances, contact a mortgage lender or the team at SVRE for expert guidance.