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How To Determine If You Should Buy A House

Hanna Kielar6-minute read

January 27, 2021

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Determining whether to buy a house is a major decision. But how do you know if you should buy a home or stick to renting?

We’ll teach you how to recognize some of the signs that point to homeownership. We’ll also cover some of the frequently asked questions most homebuyers have before they start looking.

Signs You Should Buy A House

Do you think you’re ready to take out a mortgage and buy a home? Check for these signs in your life to determine whether you should take the plunge.

You’ve Got Your Debt Under Control

You might have some sort of debt, whether it’s student loans, credit card debt or something else. However, if you’re well on your way to becoming debt-free, it might be time to think about investing in a home.

Any extra cash flow you can use to spend on a home rather than on debt might be an easy revenue source to save for a down payment.

Your Credit Score Is On The Rise

Your credit score plays a major role in your ability to get a home loan. It’s usually lower when you’re just getting started in your career or when you’ve just graduated from college. As you pay down your debt and prove yourself to be a dependable borrower over time, your credit score will go up. You can qualify for most mortgages with a credit score of at least 620.

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 an FHA loan. You might even be able to qualify for a VA loan or a USDA loan with no down payment at all.

Much of the time, you’ll find that you benefit when you bring a large 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 invest in a down payment if you have the money saved.

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.

Again, there’s no fixed requirement when it comes to DTI, but lenders typically prefer borrowers with a DTI under 50%.

You’re Steady In Your 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 you love your area before you buy a home.

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.

Bear in mind that unmarried couples looking to buy a home may have a few extra factors to consider.

You Need More Space

You might be perfectly happy in a one-bedroom apartment if you’re single or living with a partner. But do you have children or are you thinking about starting a family? You might decide you need more space. Just one extra bedroom can make a huge difference.

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. The average homeowner pays a little more than $100 a month for homeowners insurance.
  • 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 can count on your landlord to foot the bill if you rent an apartment and your $6,000 HVAC system breaks down. But the entire burden falls on you when you own your home. You need to make sure you can cover both your ongoing maintenance costs as well as any repairs. Note that repair costs on an older home can take up a significant percentage of your monthly budget. Some neighborhoods come wtih extra costs such as waste services as well.

You might be ready to buy if you know you can cover all the costs of owning a home (not just your monthly payment).

Get approved to buy a home.

Rocket Mortgage® lets you get to house hunting sooner.

Signs You Shouldn’t Buy A House

It’s important to understand when to buy a house – and when not to. If any of the following applies to you, it might be wise to stick with renting for now.

You Don’t Have An Emergency Fund

You’re responsible for fixing anything that breaks down when you own your home. If you don’t have an emergency fund, you may quickly find yourself struggling with debt. Ideally you should have an emergency fund that covers at least 3 months’ worth of living expenses before you think about getting a mortgage.

You Have A Lot Of Debt

You don’t need to be debt-free to buy a home, but too much debt can make it more difficult to get a loan. More debt can also make your loan more expensive because you’ll be less likely to get the best interest rates. Create a plan to work down your debt before you take on a monthly mortgage payment and all the expenses of homeownership.

Your Income Isn’t Stable

You need a stable and reliable income to buy a home. Career stability (being at the same job for a minimum of 2 years with no immediate plans to leave it) means you can anticipate how much money you’ll have coming in every month. With a steady income, you’ll be able to get a more accurate idea of how much home you can afford. If you just started your job or you’re thinking about making a career switch soon, you might not be ready to buy a home. Wait until you're comfortable and stable in your career before you make a commitment to a mortgage loan.

Home Buying FAQs

Let’s take a look at a few of the most common questions first-time homebuyers have.

How Long Does It Take To Buy A House?

The amount of time it takes to buy a house is different for everyone. Typically, the longest part of the process is shopping for a home, touring properties and deciding on the right one for you. Working with a real estate agent and knowing what you want and need in a property can help you find your perfect home a little faster.

From there, the length of time it takes to get a mortgage depends on your lender. The technology behind Rocket Mortgage® is designed to get you into the home of your dreams in less time.

When Is The Best Time To Buy A House?

The best time of the year to get a deal on a home is in the first quarter, according to information from real estate database Zillow. That means you’re more likely to pay less for your property if you start shopping from January to March. However, you shouldn’t let the data stop you from shopping for a home year-round. You may be able to find a hidden gem at any time of year, and you’ll want to be ready when it goes on sale.

How Do I Get Ready To Buy A House?

Start by determining how much home you can afford. Play around with a mortgage calculator to get an estimate of your monthly mortgage payment at different home prices. You may also want to create a wish list that includes things you want and absolutely need in a home. This will make shopping for a property easier, and help you narrow down your search.

Once you have a rough idea of what you want in a home, get preapproved for a mortgage. Your lender will look at your financial documentation and tell you how much of a loan you can get, which can give you a more realistic idea of how much home you can afford. From there, you can work with a qualified real estate agent in your area and begin your hunt for the perfect home.

If you’re considering building a house (whether for customization or cost), be aware that you probably won’t be able to get a traditional mortgage to finance the building of the home. Instead, you’ll need a construction loan.

How Much Should I Spend On A House?

Once you’re preapproved for a mortgage, you’ll know exactly how much you can spend on a house. However, depending on your financial situation, it might not be a good idea to take out a mortgage for the full preapproval amount.

When deciding how much you should spend on a house, you’ll want to consider factors such as DTI, monthly mortgage payment amount, the expenses of homeownership, and your household budget. Talk to a licensed financial expert before making this or any other major financial decision.

What Are Rent-To-Own Homes?

Some hopeful homeowners will enter a rent-to-own agreement in which a fixed rental period is followed by an option – or, in some cases, a mandate – to purchase the home. Specifically, a lease-option agreement allows prospective buyers to “test out” a new home and/or a new area before deciding whether they want to purchase the home or not.

This might be an appealing option if you’re unsure of whether you should buy a house, but rent-to-own agreements come with potential risks, so weigh your decision carefully.

Knowing When To Buy A House

There are lots of pros and cons to buying a house, so it’s important to know if and when you’re ready to start the process.

If you have a stable career, enjoy where you live, have a down payment and understand all of the costs of owning a home, you might be ready to buy a house. But you might want to stick with renting if you still have excessive debt, think you might switch careers soon or you don’t have an emergency fund.

Start by comparing home prices in your area to your income if you do decide you want to buy a home. If you have any questions, contact a Home Loan Expert for more information.

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Hanna Kielar

Hanna Kielar is an Associate Section Editor for Quicken Loans focused on personal finance, recruiting and personal loans. She has a B.A. in Professional Writing from Michigan State University.