Buying a home is a major decision. But how do you know whether 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 home buyers have before they start looking.
Signs You Should Buy A House
Do you think you’re ready to 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 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 have a few benefits 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 is a special type of insurance that 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’re Steady In Your Lifestyle
Buying a home is a big commitment and most mortgages last between 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 or your income isn’t steady? 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.
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 about $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 between 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 own home. You need to make sure you can cover both your ongoing maintenance costs as well as any repairs before you buy a home. Note that repair costs on an older home can take up a significant percentage of your monthly budget. Some neighborhoods require 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).
Signs You Shouldn’t Buy A House
Buying a home isn’t for everyone. You might want to stick with renting for now if any of the following applies to you.
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. Save up an emergency fund that covers at least 3 – 6 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 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 really 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 home buyers have.
How Long Does It Take To Buy A House?
The home buying process is different for everyone. The longest part of the process is shopping for a home, touring properties and deciding on the right property 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 witha 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.
It’s important to ease into the home buying process if you’re not ready. 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.
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How Much Should I Spend On A House?
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How much you should spend on a house is a combination of knowing what you can afford and considering the extra costs of living. Read on to figure out what to spend on a future property.
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How do you know if you have enough income to buy? We’ll take a look at the process through a lender’s eyes.