It’s possible that buying a house is the biggest purchase you’ll ever make. And although becoming a homeowner can feel like an exciting new chapter, you shouldn’t take on homeownership until you’re ready.
If you’re thinking about starting your home buying journey, you’re in the right place. Read on for a better understanding of what it takes to become a responsible homeowner and to gauge if you’re ready for next steps.
7 Signs You’re Ready To Buy A House
Next to purchasing a car or getting a college education, buying a house is one of the biggest financial commitments you can make during your lifetime. With this in mind, it only makes sense that you prepare accordingly and ensure that such a big purchase won’t leave you in a worse place than you were before.
Let’s go over some telltale signs that you may be on the right track to buy a house.
You Have A Good Credit Score
Credit scores play an essential role when it comes to financing a home purchase. Lenders will look to your credit score to evaluate how you’ve handled debt in the past and to determine the details of your loan, like interest rates and how much money they’ll lend you.
To put yourself in the best possible position for becoming a homeowner, having a healthy credit score is key. This means making on-time payments for any debts you may have (like student or auto loans, credit card or phone bills). In some cases, like if you’re a recent college graduate, you’ll need to start building up a credit history.
Although credit minimums vary both by lender and by loan type, having a credit score over 620 is usually the best place to start. Of course, the healthier your credit is, the more flexibility you’ll have when it comes to financing down the road.
You Have A Handle On Your Debt
For some of us, it can feel like a challenge just to imagine a debt-free lifestyle but having debt doesn’t have to stop your homeownership dream. Although debt is considered when getting a mortgage, knowing how to manage your debt plays a significant role in your financial stability.
While you should always aim to be as close to debt free as possible, just 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 goes toward paying off debt. It can be calculated by dividing your recurring monthly debt by your monthly income.
Put simply, DTI is another indicator lenders can use to gauge how much debt and how much cash flow you have. The higher your DTI and the more debt you have, the more susceptible you are to unfavorable loan terms when trying to finance a home. In general, lenders want to see a DTI of 50% or less, including your mortgage payment.
You Currently Have A Steady Income
One of the necessities for buying a new home is financial stability, which means having a reliable stream of income. While there’s no income requirement for purchasing a house, how much money you’re bringing in will affect your DTI and whether you can make monthly payments on time.
Consider figuring out how much disposable income you have with your current lifestyle and compare the figure with an approximate monthly mortgage payment for the kind of home you have in mind. This can give you a better idea of what you can afford right now.
You Have Considered All Closing Costs
When it comes to buying a house, it can be easy to fixate on the listed price, but remember that there are other expenses associated with the home buying process, namely, closing costs.
Although closing costs vary based on your area’s housing market and the type of loan you have, in most instances, buyers pay closing costs which average 3% – 6% of the purchase price. For a $300,000 house, this would be an additional $9,000 for 3% in closing costs.
Closing costs usually include:
You Have Enough Money For A Down Payment
Saving enough money for a down payment is usually 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 saving for a big down payment is a good idea, there are financing options which don’t involve such a lofty sum.
You may be able to get a conventional loan with as little as 3% down, or an FHA loan with just 3.5% down. Some options, like Department of Veterans Affairs (VA) loans and U.S. Department of Agriculture (USDA) loans may not even have a down payment requirement at all.
Keep in mind, however, that if you can afford to put more money down, larger down payments can help you avoid private mortgage insurance, can lower your monthly payment and result in less interest paid over the time of the loan.
You Have Considered All Other Homeownership Costs
Buying a home, especially if you’re a first-time home buyer, can come with more costs than you might expect. Consider all of the fees and additional costs that go into homeownership, including:
- Home maintenance and repairs: If you’re used to the renter’s lifestyle, the cost of home maintenance may come as a shock. Rather than calling up your property owner or property manager, now the labor and the cost is up to you. Routine checkups to ensure everything is running smoothly and to extend the lifetime of your appliances and systems will also be your responsibility. Expect to spend 1% – 4% of your home’s value each year for maintenance.
- New appliances and furniture: According to HomeAdvisor, as of February 2022, the average price of a new home appliance is $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 U.S. is $16,000.
- Utilities: It’s not uncommon for the cost of utilities to be included in your rent, but when it comes to homeownership, you’ll need to take care of your own water source, electricity, waste 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 U.S.
- Homeowners insurance: Mortgage lenders usually require that you have homeowners insurance as a condition of your loan. The average homeowner pays a little over $100 in monthly premiums.
- Pest control: While you likely won’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 which experiences a range of weather conditions. HomeAdvisor found that quarterly pest control costs can range from $100 – $300 per visit, though you may be able to get a discount if you pay for a bundle.
You Have A Stable Lifestyle
Getting a mortgage will enter you into a long-term contract, with the average loan term being 30 years. Although you’re not bound to that home for three full decades, with the home buying process being lengthier than say, a lease, it’s best not to buy a house unless you’re confident you’ll be in that area for a substantial amount of time.
Contact Valleywide Realty
To get started with buying a home in the Central Valley, contact us today at (209) 831-9747 or click here to connect with us online.