Becoming a homeowner is one of the most rewarding experiences in anyone’s life. It’s a time for you to finally plant your roots, style a home, and even raise a family. But buying a home isn’t as simple as swiping a debit card. Because homes are one of the most expensive purchases you’ll make in your lifetime, there are numerous factors you need to take into account before signing on the dotted line. Take a look at our guide on how to determine if you are ready to buy a house, so you can move through this process as easy as possible.
You no longer have debt
Most homeowners take out a mortgage in order to pay for their home. However, monthly mortgage payments can be pricey depending on your interest rate and how much you applied for. If you have other debts on top of your mortgage, such as credit card debt and auto loan debt, you might not be ready to buy a home.
Once you pay off significant debts, you’ll be able to move forward with buying a house. With extra cash flow, you’ll have more breathing room when it comes to paying your mortgage, utilities, insurance, taxes, home repairs, groceries, and other necessary expenses.
You qualify for a low interest rate
Banks make money by charging interest on funds they lend to you. This means your mortgage will cost more over time, especially if you can’t get approved for a low interest rate. To secure a low interest rate, you’ll need to have a high credit score. A high credit score shows lenders that you’re a trustworthy buyer, financially stable, and can pay off debt on time and in full. There are different types of loans you can look into, such as traditional mortgages, FHA loans, and so forth. You can even find plenty of information on what loan is best for you, such as a guide to getting a VA loan or a guide for securing a USDA loan.
To improve your credit score to qualify for a low interest rate on your mortgage, consider these tips that can help boost your score:
- Make on-time payments
- Keep your credit utilization ratio low
- Only apply for new lines of credit when needed
- Keep unused credit cards open
- Dispute inaccuracies on your credit report
- Don’t apply for too much credit
Once your credit score improves, you’ll have much better chances of securing a mortgage with a favorable interest rate.
You have a steady job
Most young adults aren’t ready to buy a home right after college. With student loans and other payments, most college grads end up renting an apartment with roommates or living at home with their parents in order to save up money. Once you land a steady job and have consistent paychecks, you’ll be able to save up for a sizeable down payment on your first home.
Most mortgage lenders will want you to place a down payment of around 20 percent. So, for a home worth $150,000, a down payment of $30,000 will be required. While this may come as a shock, the more money you can save for a down payment, the better. This is because you won’t have to take out a large mortgage that will accrue interest over time. It will also show the mortgage lender you’re responsible and saved, which might prompt them to give you a lower interest rate.
You have emergency savings
Owning a house is a big commitment. Unfortunately, things happen, and you may need to tap into savings to pay for unexpected repairs. As you consider buying a home, it’s important to have emergency savings set aside that can be used for not only your home but other emergencies as well, such as medical bills or car repairs.
Aside from saving for a down payment, create a rainy day fund by setting aside at least six to twelve months’ worth of expenses in a separate savings account. High-yield savings accounts make great options because they come with high interest rates, which means they can earn you more money while your money is sitting there.
Buying a home is a significant and expensive life event, which means you need to be fully prepared before meeting with your mortgage lender and fully committing. With these tips outlined above, you’ll be able to determine if you are ready to become a homeowner.