How Do I Know When I'm Ready to Buy A House?
Posted by Brad Pauly on Monday, December 21st, 2015 at 4:40pm.
Think about your financial, work, and personal situations. Buying a house requires you to be financially independent, on a career track, and ready to support changes in your personal life. Consider the following:
- Do I have regular income from a reliable source? Have I been receiving income for at least 2 years with promising future prospects?
- Have I saved enough money to make a decent down payment on a house?
- Am I regular and on-time when paying bills?
- Do I have debts like car payments and student loans?
- Can I afford a mortgage and any other home buying costs without compromising my financial security?
Think honestly about the answer to each question. Without a definitive yes or no answer, you may not be in a position to buy a house.
Do I have regular income from a reliable source?
A reliable source is usually a job that has a career track. Owning a house comes with a host of responsibilities, including maintenance, lawn care, repairs, and improvements. You'll have to outfit your house with furniture and make preparations for changes in your personal life. To offset the costs of homeownership, you'll need income that is not only high enough to support your mortgage but also steady. That means you should be:
- On track for, or at least starting, a career
- Working toward raises and promotions
- In good standing with your company
- Capable of maintaining or skilled at your work
The typical mortgage lasts 30 years, but even a 15 year mortgage will take 180 monthly payments to finish. You'll need monthly income that you're sure to receive in order to make all of your payments over the life of your home loan.
Have I saved enough money to make a decent down payment?
The standard minimum down payment on a house is 5% of the house's value, but some banks will give mortgages to homebuyers who have as little as a 3.5% down payment. Low down payments open the world of home owning to a much larger demographic, but in most cases, a 3.5% down payment will make paying off your mortgage a struggle. A decent down payment starts at about 10%. The higher your initial payment, the lower your monthly payments will be and the less you'll have to rely on your steady source of income. There's another incentive to saving more for your down payment - your mortgage insurance premium decreases for every extra 5% you pour into your down payment. If you pay 20% of the value of your home up front, your lender won't even require insurance. The down payment is a symbol of your financial stability and willingness to follow through on buying and maintaining your home. Make sure you have the capital to back up payment on your dream home.
Am I regular and on-time when paying bills?
Financial problems can snowball if you're not smart about budgeting and paying bills. Be honest with yourself and examine whether you reliably pay bills, no matter how insignificant. You won't be the only one looking at your payment history. When banks consider individuals for mortgages, they factor in more than just your credit score. Your bill paying history, including late and missed payments, will be considered as well.
Build a positive credit record before thinking seriously about buying a home. By improving how your credit report looks, you'll develop favorable spending habits that will translate to a successful home buying process when the time comes.
Do I have major debts?
While payments for your major debts may only be a few hundred dollars each month, stacking a home loan on top of them will quickly reduce the balance in your bank account. Major debts include those that cost a significant percentage of your income, including:
- Student Loans
- Medical Bills
- Car Payments
- Insurance Premiums
Most potential homeowners carry these kinds of debt before thinking about buying a house. To help reduce the burden of these debts, consider refinancing or shopping for better rates. Cut the cost of your monthly bills as much as possible before taking on a mortgage. Depending on your income and the cost of your house, your mortgage can cost you anywhere from one to several thousand dollars every month.
Can I afford a mortgage?
After buying a house, you'll take on more costs than just the monthly home loan bill. You'll have to deal with the cost of startup and upkeep, including things like:
You'll also take on closing costs before you even finish buying your home that must usually be paid up front. Budget every possible expense as you calculate if you can handle a home loan. Include costs that may occur in the future including tax liabilities, selling costs, additional family members and other life changes. If you find that you're financially responsible, have a reliable job with a promising future, are ready to take on additional and unexpected expenses, and are conscious of life changes, you may be ready to buy a house. Consult with those you know and gather all of the information you can before making a final decision.