Whether you should Buy a House
Buying a house is a major financial commitment, which is why it’s important to make this decision with careful consideration. In this article, we’ll teach you how to recognize some of the signs that you should buy a house. We’ll also answer some of the frequently asked questions most people have before they start looking for a home.
6 Signs You Should Buy A House
Do you think you’re ready to take out a mortgage and buy a home? Check for these signs in your life to determine whether you’re ready to take the plunge into homeownership.
1. Your Debt Is Under Control
You might have some sort of debt, whether it’s student loans,credit card debt or something else. Debt can prevent you from being able to save money, have a good credit score and acquire a low debt-to-income ratio. However, if you’re well on your way to becoming debt-free, it might be a good time to think about buying a home.
Any extra cash flow you can use to spend on a home rather than on debt might be an easy revenue source to save for a down payment.
2. Your Credit Score Is On The Rise
Your credit score plays a major role in your ability to get a home loan. It’s usually lower when you’re just getting started in your career or when you’ve just graduated from college. As you pay down your debt and prove yourself to be a dependable borrower over time, your credit score will go up. You can qualify for most mortgages with a credit score of at least 620.
3. You Have Money For A Down Payment
Contrary to popular belief, you don’t need to have a 20% down payment to buy a home. It’s now possible to buy a home with as little as 3% down on a conventional loan or 3.5% down on a Federal Housing Administration (FHA) loan. You might even be able to qualify for a Department of Veterans Affairs (VA) loan or a United States Department of Agriculture (USDA) loan with no down payment at all.
Much of the time, you’ll find that you benefit when you bring a larger down payment to the closing table. A 20% down payment will allow you to avoid paying for private mortgage insurance(PMI). PMI protects your lender if you default on your loan. Most lenders require that you pay PMI if you don’t put 20% down on your loan.
You can save thousands of dollars in insurance costs over time with a solid down payment. It might be time to use your money as a down payment if you have a substantial amount of funds saved.
4. You Have A Reliable Source Of Income
A reliable source of income is crucial to making monthly payments on your mortgage. Lenders will also consider your regular income when deciding how much they may be willing to loan you.
While there isn’t a specific minimum there are ways to gauge income needed to buy a house whether you might have enough cash flow to get a loan. One way is to calculate your debt to income ratio (DTI) which lenders use to determine whether borrowers are reasonably able to take on more debt.
Although there isn’t a set amount of income needed for a mortgage, you need enough to meet the DTI requirements based on your loan product. Typically, most borrowers can be approved with a DTI below 50%.
5. You Have A Steady Lifestyle
Buying a house is a big commitment, and most mortgages last 15 – 30 years. You don’t need to stay in your home for that long, but you should still be sure that you are ready for a potentially long financial commitment.
Don’t know where your career is going? Think you might want to move to a new city? Is your income a little unsteady? You might not be ready to buy a home. But if you think you might want to settle down, start a family or stay in one place for at least a few years, buying a home might be a smart move.
6. You’ve Considered All The Costs Of Homeownership
The true cost of homeownership goes far beyond your monthly payment. Some of the other costs of owning a home include:
- Insurance: Unlike car insurance, you’re not legally required to carry homeowners insurance when you own a home. However, mortgage lenders require you to have adequate insurance as a condition of your loan.
- Property taxes: You must pay property taxes no matter where you live. Property taxes go to local governments and pay for things like fire departments, public schools and libraries. Local governments calculate property taxes as a percentage of your home’s value. The more your home is worth, the more you’ll pay.
- Closing costs: Closing costs are a one-time expense you pay to close on your loan. Your closing costs may include things like title insurance, attorney fees, lender fees and more. You can expect to pay 3% – 6% of your total loan value in closing costs.
- Utilities: Your landlord might cover some of your utility costs when you live in an apartment or a rented home. You need to make sure you can take care of your own water, electricity, trash collection and sewage bills each month when you own a home.
- Maintenance: You also need to make sure you can cover both your ongoing maintenance costs as well as any home Note that repair costs on an older home can take up a significant percentage of your monthly budget.
Shouldn’t Signs You Buy A House
It’s important to know when it’s a good time to buy a house– and when not to. If any of the following applies to you, it might be wise to stick with your current living situation for now.
You Don’t Have An Emergency Fund
You’re responsible for fixing anything that breaks down when you own your home. If you don’t have an emergency fund, you may quickly find yourself struggling with debt. Ideally you should have an emergency fund that covers at least 3 months’ worth of living expenses before you think about getting a mortgage.
You Have A Lot Of Debt
You don’t need to be debt-free to buy a home, but too much debt can make it more difficult to get approved for a loan. More debt can also make your loan more expensive because you’ll be less likely to get the best mortgage rates.Create a plan to work down your debt before you take on a monthly mortgage payment and all the other expenses of homeownership.
Your Income Isn’t Stable
Career stability (being at the same job for a minimum of 2 years with no immediate plans to leave it) means you can anticipate how much money you’ll have coming in every month. With a steady income, you’ll also be able to get a more accurate idea of how much you can afford.If you just started your job or you’re thinking about making a career switch soon, you might not be ready to buy a home.
Home Buying FAQs
How much money should I save before buying a house?
This is dependent on your personal financial situation, but ideally you should have an emergency fund that covers at least 3 months’ worth of living expenses before you decide to apply for a mortgage.
How long does it take to buy a house?
The amount of time it takes to buy a house is different for everyone. Typically, the longest part of the process is shopping for a home, touring properties and deciding on the right one for you. Working with a real estate agent and knowing what you want and need in a property can help you find your perfect home a little faster.
When should I buy a house?
You should consider buying a house when you feel financially secure and stable. This includes having little to no debt, a good credit score, enough money for a down payment and a reliable source of steady income.
How do I get ready to buy a house?
Start by determining how much home you can afford. You may also want to create a wish list that includes things you want and absolutely need in a home. Once you have a rough idea of what you want in a home, you should get preapproved for a mortgage. From there, you can work with a qualified real estate agent in your area and begin your hunt for the perfect home.
How much should I spend on a house?
When deciding how much you should spend on a house, you’ll want to consider factors such as DTI, monthly mortgage payment amount, the expenses of homeownership and your household budget. Talk to a licensed financial expert before making this or any other major financial decision.
