How to Know if You’re Ready to Buy a Home
Determining if You’re Ready for the Commitment of Buying a Home
Buying a house is a big commitment, so before you start house hunting and comparing mortgage rates, take the time to examine your current situation and how it could change in the future.
- Are you planning on any major life changes, like changing jobs or starting a family, in the next few years that could impact your financial situation?
- Can you commit to staying in a home for at least five years?
- Do you have a stable income?
- Are you confident you can handle house repairs (or can take the time to learn), or are you willing to pay a specialist when something breaks?
Buying vs. Renting a House
Each option has its benefits, so consider what matters to you.
Benefits of Buying
- Having no landlord means you can make the house into the home you want without needing someone else’s approval.
- Unlike rent payments, the interest you pay with your mortgage payments can be tax-deductible.
- You can find a mortgage tailored to your budget and goals to keep your monthly payment from going up as the market changes.
Benefits of Renting
- Your landlord is often responsible for home repairs and upgrades.
- You won’t have to buy homeowners insurance or pay property taxes on your home.
- Moving can be easier since you won’t have to sell your home or find renters.
How to Evaluate Your Financial Situation Before Buying a House
Buying a home is one of the largest purchases you’ll likely make, and it’s important to make sure your financial house is in order. Start by reviewing your bank accounts and billing statements to get a handle on how much money you’re making and spending each month. If you’re planning to buy a house with someone else (like your spouse), review their finances as well, and then ask yourself some questions:
- Do you have a stable income/job?
- Are you able to put away some money each month into a savings account?
- Do you have a plan for managing debt, like student loans and car payments?
- Do you typically pay your credit card debt quickly? Keeping your credit debt low will help you qualify for a better mortgage.
- Do you have some money already saved up for emergencies? A good rule of thumb is having three months of income saved.
- Do you have some money saved up for a down payment and closing costs? You should avoid using your emergency savings for this, or you could put yourself in a tight situation.
Determining Your Down Payment
Your down payment is cash you’ll pay for the home at closing. The minimum requirement for your down payment varies based on the type of loan you get and your financial situation. FHA loans require a down payment of at least 3.5%, while conventional loans typically require at least 5%. Some first-time home buyers can qualify for a conventional loan with a 3% down payment. The more you put down, the lower your monthly payment and interest rate will be.
Along with your down payment, you’ll also pay closing costs, which are fees associated with processing and securing your loan. Closing costs can vary depending on the price of the house and the type of mortgage, but they’re generally between 2% and 5% of the home’s purchase price.