3. You Have Money For A Down Payment
Contrary to popular belief, you don’t need to have a 20% down payment to buy a home. It’s now possible to buy a home with as little as 3% down on a conventional loan or 3.5% down on a Federal Housing Administration (FHA) loan. You might even be able to qualify for a Department of Veterans Affairs (VA) loan or a United States Department of Agriculture (USDA) loan with no down payment at all.
Much of the time, you’ll find that you benefit when you bring a larger down payment to the closing table. A 20% down payment will allow you to avoid paying for private mortgage insurance (PMI). PMI protects your lender if you default on your loan. Most lenders require that you pay PMI if you don’t put 20% down on your loan.
You can save thousands of dollars in insurance costs over time with a solid down payment. It might be time to use your money as a down payment if you have a substantial amount of funds saved.
4. You Have A Reliable Source Of Income
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.
While there isn’t a specific minimum income needed to buy a house, there are ways to gauge whether you might have enough cash flow to get a loan. One way is to calculate your debt-to-income ratio (DTI), which lenders use to determine whether borrowers are reasonably able to take on more debt.
Although there isn’t a set amount of income needed for a mortgage, you need enough to meet the DTI requirements based on your loan product. Typically, most borrowers can be approved with a DTI below 50%.
5. You Have A Steady Lifestyle
Buying a house is a big commitment, and most mortgages last 15 – 30 years. You don't need to stay in your home for that long, but you should still be sure that you are ready for a potentially long financial commitment.
Don’t know where your career is going? Think you might want to move to a new city? Is your income a little unsteady? You might not be ready to buy a home. But if you think you might want to settle down, start a family or stay in one place for at least a few years, buying a home might be a smart move.
6. You’ve Considered All The Costs Of Homeownership
The true cost of homeownership goes far beyond your monthly payment. Some of the other costs of owning a home include:
- Insurance: Unlike car insurance, you’re not legally required to carry homeowners insurance when you own a home. However, mortgage lenders require you to have adequate insurance as a condition of your loan.
- Property taxes: You must pay property taxes no matter where you live. Property taxes go to local governments and pay for things like fire departments, public schools and libraries. Local governments calculate property taxes as a percentage of your home’s value. The more your home is worth, the more you’ll pay.
- Closing costs: Closing costs are a one-time expense you pay to close on your loan. Your closing costs may include things like title insurance, attorney fees, lender fees and more. You can expect to pay 3% – 6% of your total loan value in closing costs.
- Utilities: Your landlord might cover some of your utility costs when you live in an apartment or a rented home. You need to make sure you can take care of your own water, electricity, trash collection and sewage bills each month when you own a home.
- Maintenance: You also need to make sure you can cover both your ongoing maintenance costs as well as any home Note that repair costs on an older home can take up a significant percentage of your monthly budget.
You might be ready to buy if you know you can cover all the costs of owning a home (not just your monthly payment).
