Thinking about buying your first home is exciting and overwhelming at the same time. It’s a whole new world when compared to renting. You own your home, can do what you want to it (within reason), and are responsible for all expenses including maintenance, repairs, taxes, and insurance, along with the mortgage payment.
How do you know when you’re ready to take the leap? Here’s what we think.
You Know Your Credit is Decent
Lenders look at your credit score first. It’s what makes them say ‘yes let’s look into this further’ or ‘no thanks.’ You don’t need perfect credit, but decent credit helps. Shoot for a credit score of at least 650, if not higher. Not only does your credit score determine if you’ll get approved, but it determines the rate and terms lenders offer.
You’ve Saved for a Down Payment
Most loan programs require some type of down payment unless you qualify for a VA or USDA loan (for veterans and rural home buyers). FHA loans, which are a great first-time homebuyer’s loan program, require a 3.5 percent down payment and conventional loans require at least 5 percent down. The more money you put down, the lower your mortgage payment is and the better terms you may get.
You have Steady Employment and Income
When you take out a mortgage, you agree to make the payments for the entire term (15, 20, 25, or 30 years). You want stable income and employment so you know you can comfortably afford the payment. Lenders look at your income compared to your debts – they make sure you aren’t overextended and will have trouble making your payments. Even if you have great income, you know whether it’s stable and will continue for the foreseeable future – those are key factors.
You Have Money for Maintenance and Repairs
Unlike renting, you are responsible for all home repairs and maintenance. While no one can predict the cost of fixing issues in your home, a good rule of thumb is to save 1 percent of your home’s value. Let’s say your home is worth $250,000. You should have $2,500 available for home repairs and maintenance. If you’re buying an older home or a home with known issues, you’ll need to adjust.
You’re Staying Put
When you rent, you can potentially move every year when your lease ends. Moving is a lot more expensive when you buy, though. Wait until you can see yourself staying put for the next 3 – 5 years before buying. This gives you time to earn equity in the home and making buying the home worth it.
When you’re ready to buy your first home, make sure you have attractive financing options. Today, rates are lower than ever, making it a great time to become a homeowner. You’ll have access to rates we haven’t seen in years, giving you more purchase power and a greater chance of approval with the lower mortgage payments.
