Knowing if you are ready to buy a house is a tricky thing. Since you can’t really Zoltar your way through it, you must take a look at several factors. Are you finically stable enough? What can you afford? Is it realistic for where you are at in life? Take a look at these key points to see if you are ready to take the leap into homeownership!
“I’m going to tell you something.” – Ricky Roma, Glengarry Glen Ross
One of the first things you should look at when considering whether you are ready to buy a house is your debt-to-income (DTI) ratio. Your DTI is the percentage of your monthly debt payments compared to your monthly gross income. Lenders will look at your DTI to determine if you can afford your monthly mortgage payments. In general, the lower your DTI is, the better chance you will be approved for a mortgage. According to our very own Mortgage Origination Manager, Monica McCallister, “Every loan will have different DTI parameters. Many things such as loan type, loan-to-value, and additional compensating factors all have an influence on an acceptable DTI. All that considered, an ideal DTI would be 43% or below.”
“That’s when the big bucks start rolling in.” – Maurice, Coming to America
One of the next things you should look at is if you have stable income. The reason why this is important is because having income stability is crucial for qualifying for a mortgage. Lenders will analyze your monthly income amount along with your employment history and decide whether you are eligible for a mortgage loan. Frequent job changes or new employment may also affect your eligibility since it may show instability. If your income is not sufficient to support a mortgage payment along with all your monthly bills such as utilities and groceries, you may want to evaluate your financial situation and make sure the timing is right.
“Isn’t my house classic?” – Cher, Clueless
The next thing you should consider is your credit score. Having a good credit score indicates to lenders that you are financially responsible, and stable enough to handle a monthly mortgage payment. Another cool perk you get from having a good credit score is that you may get better terms on your loan, which can save you thousands in the long run!
On the other hand, if your score is in the fair to poor range, look at what you can do to improve it. Watch for items that could be negatively affecting it, like late payments, too many hard inquires, or a short credit history. Credit utilization also has a significant effect on your credit score. The lower your utilization rate is, the more it can help your credit score. Having a low credit score reduces your chances of qualifying for a home loan, so you want it in tip-top shape before buying your future home.
“No dough, no show.” – Lucky Day, Three Amigos!
Do you have enough money saved for a down payment and additional closing costs? A down payment is the initial payment you make when you purchase a house. Different loan programs have different down payment requirements. There are many low down-payment options that may work for your financial situation. You also may consider saving additional funds so you can put more money down and have a lower monthly mortgage payment. There are also additional closing costs that will be necessary to pay either during the loan process or at closing. Some of these costs include credit report and appraisal fees, any lender origination fees, and adding funds into an escrow account for property taxes and homeowner’s insurance.
“A-B-C, Always Be Closing.” – Blake, Glengarry Glen Ross
The last little piece of advice I will give you is to look at the housing market. If the economy is in a recession or there is another housing crisis like there was back in 2008, you may want to hold off on buying a home. However, in a buyer’s market, depressed prices could make buying home easier for you.
Buying a home is a huge investment that needs to be thought out carefully. These little tips can get you on your way down the path of “buying a home boulevard”! Here at Central National Bank, we have an incredible team of lenders who are here for you. They want what is best for you and your situation. If you want to talk to one of our lenders about the possibility of becoming a homeowner, click here.
For more information about home mortgages, you can visit https://centralnational.com/mortgages/.
Bonus, here is another blog you can look at to help you decide if you are ready to buy a home. Should I Stay or Should I Go?
Happy trails and good luck!
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Sources:https://www.investopedia.com/articles/mortgages-real-estate/10/ready-to-buy-house.asp