Taking the plunge into homeownership is equal parts exciting and nerve wracking. But how do you know when you’re truly ready?
The answer is different for everyone. To help you decide, though, here are five signs that perhaps the time has come for you to buy your first home.
1. You’re financially prepared to buy a home.
Before buying a house, you want to be sure that you’re prepared financially for the costs—especially the unexpected ones.
In addition to being able to afford monthly mortgage payments, insurance, utilities, taxes and your other miscellaneous living expenses, you’ll want to have an emergency fund set aside. Zina Kumok writing for IntuitMint recommends that you have three to six month’s worth of expenses in a savings account before buying a house.
That way, you’ll have a cushion in case something unexpected happens after you buy your home. If you lose your job or suffer a medical emergency, you’ll be able to pay the bills with your savings.
Kumok also stresses the importance of being prepared for additional costs associated with owning a home (think repairs).
“Experts say you should save 1% of the home’s purchase price every year for repairs, or $1 per square foot. This will cover both minor problems, like new mortar on your exterior, and major issues like replacing your roof,” she writes.
2. You can afford the down payment.
Most conventional lenders require a down payment of 5 percent to 20 percent of the home’s price.
You may have heard that a 20 percent down payment is best. There are many advantages to putting 20 percent down, including:
- Your loan will be smaller, meaning lower monthly payments.
- You’ll have lower overall costs. The lower your loan, the less you’ll pay in interest.
- You’ll have more home equity from the get-go.However, keep in mind that when you put down less than 20 percent with a conventional lender, you will most likely be required to pay private mortgage insurance (PMI). PMI protects the lender if you stop making payments on your loan and will be added to your monthly mortgage payment.
- Of course, you don’t have to make a 20 percent down payment. If you’re a first-time homebuyer, you may not have quite enough saved to manage a 20 percent down payment and still have money set aside for your emergency fund. In that case, you may opt for a lower down payment somewhere in the neighborhood of 5 percent to 15 percent.
3. You have a solid credit score.
Lenders will look at your credit score (among other things) when deciding whether or not to lend to you. Your credit score plays a part in determining whether you’ll be able to get a mortgage, as well as the rate you’ll pay.
Most mortgage lenders use FICO scores, which range from 300-850. The higher your credit, the easier it will be for you to qualify for a loan. A higher credit score may also result in a better interest rate.
What’s the minimum credit score you need to have to buy a home? It varies by lender and loan type, but the experts at Intuit say 600 is a good credit score benchmark when applying for a mortgage.
“If your credit score falls below the 600 mark, consider attempting to raise your credit score before applying for a loan,” they say.
If you don’t have a great credit score, you aren’t out of luck. One mortgage myth is that if you have bad credit, you’ll be unable to get a mortgage. While your credit score does affect your ability to get a mortgage, it’s not the only factor lenders take into account. Also, there are loan options out there for people with lower credit. For example, you could qualify for an adjustable-rate mortgage (ARM), which offers more flexibility.
Improving your credit score is never a bad idea, though. Start taking proactive steps today to boost your credit and you’ll enjoy long-term rewards.
Related: 6 Tips to Raise Your Credit Score
4. You’re ready to put down roots
Experts recommend that you plan to stay five years, minimum, after buying a home. Otherwise, you risk losing money.
If you’re not sure where you’ll be in the next 5-10 years, it may be better to rent than to buy.
5. You have a reliable source of income.
Having a stable income is important not just for you to make your mortgage payments, but also to lenders evaluating your ability to handle a loan.
Ready to Buy a Home?
If all the signs are there and you feel ready to buy a home, the next step is to find a mortgage lender you can trust. If you have questions about mortgage loans, call 877.672.4543 to speak with a mortgage loan officer, fill out our online mortgage application or visit a Mercer Savings Bank location near you today.