Buying your first home is a significant milestone in your life. It’s important to make sure you’re ready for homeownership before purchasing a property. Assessing your readiness can help you avoid rushing into buying a home you can’t afford and ensure you have accounted for the expenses of owning a home. Explore the six signs you’re ready for homeownership, such as having good credit, understanding the home buying process, and owning high-quality tools like a saw, mower, or pressure washer. Considering these factors can help you decide whether now is the right time to start looking for your first house.
Your rental history serves as a good indicator of your readiness to own a home. For most people, buying a home means taking out a mortgage and making monthly payments. This process is similar to paying a monthly rental fee, so having excellent rental history indicates that you can handle the responsibility of paying your mortgage every month. If you have any late payments or evictions in your rental history, consider the circumstances under which they occurred. If they happened several years prior or were due to circumstances outside of your control, you can overlook these issues. Instead, focus on your most recent rental history and your financial ability to pay monthly mortgage payments on time.
Buying a home is a significant investment. Most mortgage terms last between 15 and 30 years, meaning you must commit to making long-term monthly payments. Having a stable career puts you in the best position to buy a home because it offers a stronger guarantee that you’ll be able to make payments over the course of the loan. Although there are no set guidelines on what constitutes job stability, consider the following factors:
- You’ve been at your job for several years.
- You have opportunities for advancement in your company.
- You work for an established employer.
- You receive steady pay increases and good reviews.
3. You Have Good Credit
Your credit score is a critical part of buying a home because it shows your history of handling debt and lets lenders know if you can repay the loan. Your credit score is a number that ranges between 300 and 850. You need a credit score of at least 620 to apply for a home loan with most traditional lenders. However, if you are applying for an FHA loan, you may qualify with a score under 580, and there is no minimum credit score requirement for a VA loan.
Request a copy of your credit report from each major financial institution: Equifax, TransUnion, and Experian. Before buying a home, pay off any outstanding debts or consolidate them into a single payment to boost your credit score. You should also try setting up automatic billing to ensure all your bills are paid on time.
4. You’re Ready to Settle Down
Buying a home is a long-term investment, so you need to ensure that you are ready to settle down in one place before exploring the housing market. According to the National Association of Realtors, the average length of time spent in a home is 13 years.
You need to consider your long-term goals and needs. Is your job likely to take you to a new location? Are you planning to start a family? Does the area offer all the amenities and attractions you need to enjoy your lifestyle? Before purchasing, carefully research the area in which you plan to buy your home and look at projections regarding urban expansion, population growth, housing market statistics, and local developments to determine if you can see yourself living in the area for the next decade.
If you are only planning on staying in the area for a few years, consider whether buying a home makes financial sense. Your home’s closing costs are typically between 3% and 4% of the sale price. Compare the costs of purchasing a home against renting in the area using a simple online calculator.
5. You Saved Up for a Downpayment
Saving up for a downpayment can be a daunting task. Saving tens of thousands of dollars can seem unattainable to many potential homeowners; however, you may not need to save up as much as you think. Most potential homeowners believe you need at least a 20% downpayment for a home loan. However, numerous lenders now accept down payments as low as 3%, as for an FHA loan. According to a survey by Rocket Mortgage, the average down payment value was 6% of the home loan. However, the down payment amount depends heavily on your credit score; for scores lower than 625, lenders may ask for a high down payment amount.
Another consideration you need to factor in to your decision-making process is that if you make a downpayment under 20%, you’ll need to buy private mortgage insurance (PMI). PMI is designed to protect the lender if you default on your loan. The PMI is typically added to your monthly loan payment and equates to between 0.5% and 2% of the loan amount. Once you have reached the 20% down payment threshold, you can ask your lender to remove the PMI payment.
Paying a larger down payment also offers you benefits over the life of the loan. A sizable down payment can reduce the total interest you pay or may help you negotiate a better interest rate with your lender.
6. You’re Prepared for the Costs of Owning a Home
Part of being ready to own a home is preparing for the costs of living in and maintaining the property. Many new homeowners assume living in a home is similar to living in an apartment and fail to account for home maintenance or lawn care costs. When you own your own home, you bear responsibility for taking care of the house, including the yard and interior and exterior repairs. You may need to purchase quality power concrete tools to repair walkways, porches, or sidewalks on your property and invest in lawn care tools to manicure your yard. You may also benefit from having a high-powered generator on hand if your power goes out and you need to provide electricity to your home.
Start Looking for Your New Home
Preparing yourself for homeownership is essential to making the home-buying decision. You’re likely financially ready to buy your first home if you have a stable career and good credit and have saved up for a downpayment. Make sure you familiarize yourself with the home-buying process and factor in the expenses of owning and maintaining a home to ensure a smooth transition into homeownership.