8 Signs You Are Ready to Buy a House

We have all heard the saying that renting is like flushing your money down the toilet. Well, we have heard that nonsense too. The truth is, not everyone should buy a house. Homeownership is a major milestone that many people dream of reaching one day. However, there are a variety of factors to consider when making one of the biggest financial decisions of your life.

So, if you have been thinking about becoming a homeowner, but are not sure if you’re prepared, you’ve come to the right place. We’ve laid out 8 questions to help you decide if you are ready to get the ball rolling on buying a house.

8 Signs You Are Ready to Buy a House

Do you frequently find yourself wondering whether to keep renting or buy a home? Here are eight signs that you are ready to make the switch from renter to homeowner.

1. You Have Dependable Income

Regular, dependable income and stable employment is critical to qualifying for a mortgage. A home is a long-term investment, so your source of income is one of the main factors mortgage lenders look at when assessing your eligibility for a loan. If you do not have proof of steady income or have a shaky employment history, you may find it difficult to qualify.

But even if you can demonstrate financial stability on paper, you should only buy a house if you think your income will remain steady for the foreseeable future.

2. Your Debt-to-Income Ratio is Low

You do not have to be completely debt-free to buy a home. Between car payments, student loan debt and other bills, most lenders understand that it is unrealistic to expect borrowers to be totally debt-free these days. Essentially, they want to know that you will be able to afford your mortgage payment based on how much money you have coming in versus what you need to pay out to other debts.

To figure this out, lenders look at your debt-to-income ratio, or DTI, to determine whether you can afford to take on a new loan in addition to your existing debt. The higher your DTI, the more likely you will be stretched too thin financially.

Your debt-to-income ratio (DTI) is the percentage of your monthly debt compared to your monthly gross income. Credit card payments and loan payments and the payments on your new home are examples of the debts lenders include in your DTI calculations. Your DTI should ideally be below 40% when you include your proposed mortgage payment. Some lenders have stricter requirements. The lower your debt in comparison to your income, the better chance you have of qualifying for a mortgage.

So, before you buy a house, knock out a good portion of your debt as fast as possible. Once debt is under control, get busy stockpiling money in an emergency fund. Then your budget will be secure and you can focus on saving up a down payment.

3. You Have a Good Credit Score

Some renters cannot make the leap to homeownership because they do not qualify for a mortgage. Low credit scores are a common reason why: A history of late payments or too much debt will hurt your score. Your credit score is a number that represents your creditworthiness. Credit scores typically range from 350 to 850 with higher numbers representing better credit. Your credit score is calculated with information from your credit report, including payment history, debt and the length of your credit history.

One of the most common questions first-time buyers ask is, “what credit score is needed to buy a house?” While there is no set number for this, you will likely need a minimum credit score of 600 for approval. Although borrowers with a credit score as low as 500 can qualify for some home loans, they will be required to make bigger down payments and pay higher rates. A good credit score gets you better interest rates and loan terms. To qualify for the most favorable rate, however, work on improving your credit score and wait until you have a score of 700 or higher.

4. You Have a Good Down Payment

It can take a long time to save up enough money for a down payment on a home. Although the common perception is that first-time homebuyers need to have a 20% down payment to purchase a home, that is simply not the case. Depending on the lender and type of home loan, you may be required to put down at least 3% (FHA loans, however, typically require at least 3.5%). For instance, a home that costs $300,000 with a 3% down payment requirement will require you to put down at least $9,000.

It is important to remember that the larger your down payment, however, the lower your monthly payments will be and the less interest you will pay during the life of your loan. Do not forget to factor in closing costs, which can be anywhere from 2 to 5% of the purchase price.

5. You Can Cover the Additional Costs of Buying a Home

When you think about buying a home, many only think about their down payment and monthly mortgage payments. But buying a home carries additional costs you need to factor into your budget. Some of these costs are one-time expenses that you won’t have to think about again, while others need to be paid regularly.

Other financial aspects of homeownership may include:

• Property taxes: Local governments raise money through property taxes to fund things like schools, law enforcement, fire departments and (supposedly) fixing potholes.
• Homeowners insurance: Sure, homeowners insurance adds more dollar signs to your house payment. But paying for coverage will be way less expensive than trying to replace all your stuff out of pocket if your house ever burned down. Plus, your mortgage lender will require you to have it.
• Private mortgage insurance (PMI): Remember: You can avoid PMI if your down payment is 20% or more. But if you make a smaller down payment, expect to pay around $75 a month per $100,000 that you borrow.

• Homeowners’ association (HOA) fees: Houses located in specific neighborhoods or gated communities sometimes have homeowner’s associations (HOA). Almost all condominiums and townhouses have HOAs. When you belong to an HOA, you pay fees for the services and amenities the association provides. The amount and frequency of HOA payments varies.

6. You Have Savings to Cover Maintenance and Repairs

Owning a home means you will have to maintain your property. While you may have enough to purchase a home, you will need to make sure you can also cover the costs of owning one. When a pipe bursts or the air conditioner goes out in a rental unit, you do not have to worry about paying for it: That is the landlord’s responsibility. The same goes for property taxes and routine maintenance expenses. When you are the owner, though, all those costs are your responsibility — so you need to have enough extra money to handle the added expenses.

Many realtors and insurance companies recommend following the one-percent rule. Tuck away one percent of the value of the home you intend to buy each year to cover maintenance and unexpected repairs.

7. You Plan on Staying Put for a While

Another thing to think about is whether you are at a place in life where you are ready to stay in your city for more than a few years. It takes time to build equity in your home through paying down your loan and home price appreciation. If you plan to move too soon, you may not recoup your investment.

8. You Have an Expert Real Estate Agent You Can Trust

It can sometimes be difficult to find a house you love that is also within your budget, but it is a whole lot easier when you have a top-notch real estate agent on your side. Plus, working with a buyer’s agent brings two other big benefits:

• Saving money: In most cases, the home seller pays the commission for your agent—so you pay nothing to get expert help! Even better, a buyer’s agent can save you thousands of dollars on your dream home by fighting for your best interests at the negotiation table.
• Saving time: Without an agent, you’ll have piles of paperwork to wade through. Life’s too busy for that! Let an expert who knows all the laws and regulations specific to your city take care of the red tape for you.

Find the Right Agent

Buying your house should be a fun and fulfilling experience. If you have done your research and evaluated what you can afford and what you truly need, finding a new home can be exciting. Learning more about the purchase process eliminates the fear of the unknown and lets you search for a home with peace of mind.

Windermere’s community of real estate professionals is our greatest asset. We have experts in all areas of real estate, from your typical starter home to condos, luxury properties, and new construction. While residential real estate is the mainstay of our business, Windermere also has offices and associates who specialize in property management, commercial real estate, and relocation services. To further facilitate the home buying process, Windermere has affiliated partners in certain regions to provide mortgage, title, and escrow services.

Call us today with any questions or concerns. Our professional Real Estate Agents will help you through this exciting process. (951) 369-8002