Should I buy a house?

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7 signs you’re ready to buy a house

Besides buying a car or pursuing a college education, buying a home is one of the biggest financial commitments you can make in your lifetime. With that in mind, it only makes sense that you prepare accordingly and ensure that such a large purchase won’t leave you worse off than before.

Let’s review some telltale signs that you may be on the right track to buying a home.


  1. You have a good credit score

Credit scores play a vital role when it comes to financing the purchase of a home. Lenders will look at your credit score to assess how you’ve managed debt in the past and to determine your loan details, such as interest rates and how much they’ll lend you.

To put yourself in the best possible position to become a homeowner, it is essential to have a good credit rating. This means making on-time payments for any debts you may have (like student or car loans, credit card or phone bills). In some cases, like if you’ve recently graduated from college, you’ll need to start building a credit history.

Although credit minimums vary by both lender and loan type, having a credit score above 620 is usually the best place to start. Of course, the healthier your credit, the more flexibility you will have when it comes to financing in the future.


  1. You control your debt

For some of us, it may seem difficult to imagine a debt-free lifestyle, but having debt doesn’t have to stop your dream of home ownership. Although debt is considered when getting a mortgage, knowing how to manage your debt plays an important role in your financial stability.

While you should always aim to be as close to debt as possible, simply taking steps to lower your DTI (debt to income ratio) is a great place to start. Your DTI is the percentage of your gross monthly income that is used to pay off debt. It can be calculated by dividing your recurring monthly debt by your monthly income.

Simply put, the DTI is another indicator that lenders can use to gauge how much debt you have and how much cash flow you have. The higher your DTI and the more debt you have, the more likely you are to experience unfavorable loan terms when trying to finance a home. Generally, lenders want to see a DTI of 50% or less, including your mortgage payment.


  1. You currently have a stable income

One of the necessities for buying a new home is financial stability, which means having a reliable stream of income. Although there is no income requirement to buy a home, the amount of money you bring will affect your DTI and whether you can make monthly payments on time.

Consider figuring out how much income you have available with your current lifestyle and compare that figure with an approximate monthly mortgage payment for the type of home you have in mind. This can give you a better idea of ​​what you can afford right now.


  1. You have factored in all closing costs

When it comes to buying a home, it can be easy to settle on the list price, but don’t forget that there are other expenses associated with the home buying process, find out the closing costs.

Although closing costs vary depending on the real estate market in your area and the type of loan you have, in most cases buyers pay closing costs which average 3-6% of the purchase price. . For a $300,000 home, that would be an additional $9,000 for 3% closing costs.

Closing costs generally include:


  1. You have enough money for a down payment

Saving enough money for a down payment is generally seen as the biggest hurdle to becoming a homeowner, with a presumption that you need 20% of a home’s value set aside for the down payment alone. While it’s good to save for a large down payment, there are financing options that don’t involve such a large sum.

You may be able to get a conventional loan with as little as 3% down payment, or an FHA loan with just 3.5% down payment. Some options, like Department of Veterans Affairs (VA) loans and United States Department of Agriculture (USDA) loans, may not even require a down payment at all.

Keep in mind, however, that while you can afford to put more money aside, larger down payments may help you avoid private mortgage insurance, may lower your monthly payment, and result in lower interest paid during the term of the loan.


  1. You have considered all other homeownership costs

Buying a home, especially if you are a first-time home buyer, can lead to higher costs than expected. Consider all additional fees and costs associated with home ownership, including:

  • Home maintenance and repairs: If you’re used to the tenant lifestyle, the cost of maintaining the home can come as a shock. Rather than calling your landlord or property manager, labor and cost are now up to you. Routine checks to make sure everything is working properly and to prolong the life of your devices and systems will also be your responsibility. Expect to spend 1-4% of your home’s value each year on maintenance.
  • New appliances and furniture: According to HomeAdvisor, in February 2022, the average price of a new appliance was $2,175. The larger the unit you want, the more you can expect to pay. HomeAdvisor also found that the average cost to furnish a home in the United States is $16,000.
  • Utilities: It is not uncommon for the cost of utilities to be included in your rent, but when it comes to home ownership you will need to take care of your own source of water, electricity, garbage removal and sewage bills each month. The cost of utilities varies by location, but Move.org estimates a monthly total of $370 for homeowners in the United States.
  • Home insurance: Mortgage lenders usually require you to have home insurance as a condition of your loan. The average homeowner pays just over $100 in monthly premiums.
  • Pest Control: While you probably don’t need monthly checkups in a single-family home, it’s not a bad idea to have quarterly inspections for pests, especially if you live in an area that experiences a range of weather conditions. . HomeAdvisor found that quarterly pest control costs can range from $100 to $300 per visit, though you may get a discount if you pay for a flat rate.

  1. You have a stable lifestyle

Obtaining a mortgage will commit you to a long-term contract, with the average term of loans being 30 years. Although you’re not tied to that house for three full decades, the process of buying a house being longer than, say, a lease, it’s best not to buy a house unless you’re sure that you will be in this area for a substantial amount. of time.

If you travel a lot for work or leisure, or if you don’t yet know where you plan to put down roots, you may want to hold off on buying a home for now.

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