Before making any big purchases, let alone something as big as a house, you need to make sure that your financial life is in order. Here are the boxes you need to tick off your “ready for homeownership” checklist.
You have no more debt.
Go over your financial life. Have you killed your outstanding car payment and credit card debt? How about your student loans and other personal loans? Before you even consider going for a house in the market, make sure you no longer have extra bills that might diminish the funds you’ve set aside to pay for home mortgage loans.
At the same time, you need extra cash because there are many homeowner expenses you need to think about in advance, like insurance, property tax, maintenance, repairs, and furnishings. Make sure your finances are in order before you set your heart on a property.
Your credit score is higher.
Paying off your credit card loans means your credit score is higher, which is the key to getting an ideal interest rate. When you’re qualified for a good interest rate entails enjoying a lower mortgage payment every month, making the prospect of buying your own home a more affordable endeavor.
You have an increase in income.
A rule of thumb never has to put more than 30 percent of your monthly income towards a home mortgage payment. You might be able to do this if, and only if, you know how to live a leaner lifestyle before you receive a healthy raise. If you know for sure that you will reach a point in your job where you will receive a higher income at some point, you might be financially healthy enough to purchase your own home.
A higher paycheck means not having to place a large percentage of your total monthly income towards your home payment. The extra income gives you a buffer and eliminates a potential financial vulnerability in the future.
You have a steady job.
You need to be able to prove that your job is stable enough to back up your homeownership. If your job is steady, stable, and secure, the more that loaners will be able to see you as someone in a good position to pay off your home mortgage loans in the future.
You have enough funds for a healthy down payment.
One way to know you’re ready to buy a house is if you have at least 10 percent as a healthy down payment. This amount should be outside of your emergency fund and savings. If you’re able to put down even more than that—around 15 to 20 percent—then that’s even better because it will help you avoid the private mortgage insurance (PMI). The more you can put down, the lower your ensuing monthly payments will be.
You have funds for rainy days and your plans.
Having enough savings and an emergency fund must precede homeownership because unexpected things can happen at any time. If COVID-19 and the recession that followed have taught us anything, it’s that we need to be prepared for whatever life throws us at. Make sure you have enough saved away, not just for a rainy day, but also for you and your family’s future.
You’re not house-poor.
Being house-poor means having enough money to pay off house debts but not having enough to spend on anything else. The problem with being house-poor is that it may end up making you resentful over the house that you bought because you’re not able to do anything else like, like going on occasional vacations or eating out or shopping for your wants, and not just your needs.
If you’re someone who’s easily contented and you’d be happy with owning a house and not doing anything else, then, by all means, invest in your future home. But if you’re the type not to do well when you have to cut back on your lifestyle, then crunch the numbers first to make sure you have enough funds to enjoy life while paying off house loans.
Know Your Goals and What You Want
Do thorough research on what you’re able to afford in terms of house prices, mortgages, and home features. Another factor that you also need to consider is how the properties’ prices work in terms of location. You need to consider your commute when you have to go back to the office, the school system if you’re planning on having kids, and other important factors like crime rates and safety. Being armed with this information can help you be more objective about the decision you have to make.
Meta Title: Signs that You’re Ready to Own a House
Meta Description: Making big purchases in the time of a pandemic and a recession can be intimidating. Here are some signs that you’re ready to own a house in 2021.