Buying a house is a major decision and one that should not be taken lightly. If you’re thinking about it, whether it’s because you want more space or you’re sick of renting, there are definitely signs to indicate whether you’re ready to take the leap and if you’re financially able to support that decision. And while there are pros and cons to renting and buying, it’s important to understand that you will most likely need to take out a mortgage.
In addition to that, you should also understand the costs of home ownership, some of which may include insurance, property taxes, closing costs, utilities and maintenance. A lot goes into the decision, but if you’ve considered that and are starting to see the below signs playing out in your life, then you may just be ready to take the plunge.
Your debt is under control
It’s common to have some type of debt (i.e. student loans or credit card debt), but if you are on your way to becoming debt-free, it might be time to invest in a home in more ways than one. When you buy a home, it’s your investment and you get the benefits with the most significant one being home equity. This could potentially mean that as you build equity in your home, you can tap into that equity for things such as home renovations and paying off credit cards.
Your credit score is increasing
According to Rocket Mortgage, 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 and with a credit score of at least 620, you can qualify for most mortgages.
You have money saved for a down payment
Believe it or not, you don’t need to have a 20 percent down payment to buy a home. You can have as little as three percent down on a conventional loan or 3.5 percent down on an FHA loan and you might even be able to qualify for a VA loan or a USDA loan with no down payment at all. If you have money saved, it might be time to invest in a down payment as most of the time, you can benefit when you bring a large down payment to the closing table. A 20 percent down payment will allow you to avoid paying for private mortgage insurance (PMI), which most lenders require you pay if you don’t put 20 percent down on your loan, but Rocket Mortgage has some of the lowest PMI rates ($44 compared to the $80 national average).
You have a steady income and lifestyle
While there isn’t a specific minimum income needed to buy a house, 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 and calculate your debt-to-income ratio (DTI) to determine whether you’re able to take on more debt. Typically, lenders prefer borrowers with a DTI under 50 percent. Additionally, if you have a steady income and are also thinking about growing your family or staying in one place for a few years, buying a home might be a smart move.
You need more space
As mentioned previously, more space is a common reason people look to buy a house. While there is absolutely nothing wrong with an apartment, having an extra bedroom or a bigger kitchen and living area can make a huge difference, especially if you already have kids and are expecting more down the road.
This article was created by SheKnows for Rocket Mortgage.