Are You Ready to Buy a Home?
Have you ever felt pressured into buying a home? Maybe your co-worker tells you that they’re in the process of buying their first home or close friends and family have been recently indulging in open houses. Not to mention, you keep hearing about house prices “on the rise” and now’s the best time to purchase. All these tempting forces and circumstances may lead you to ask yourself, “am I ready to buy a home?”
Maybe you are or maybe you’re not quite there yet. It’s best to be confident, knowing that purchasing a home can be one of the biggest financial investments you make in your life.
While it’s human nature to gravitate towards the idea of homeownership when all the signs imply that it’s time, the process itself is not that simple. Diving into the homebuying process headfirst without being prepared can lead to roadblocks down the line. To boost your confidence and help you feel secure in this decision, these 6 telltale signs may tell you that you’re ready for homeownership.
1. You pay rent on time and have extra to spare
Purchasing a home may require you to make monthly payments to your mortgage lender to pay off your mortgage. Renting is quite similar, in the sense that renters make payments to their landlord every month. Think about your role as a renter these past few years. Would you consider yourself a responsible tenant? Even though you pay your rent on time, do you usually have extra to spare?
Paying your rent on time is a great indicator of being able to obtain a mortgage. It demonstrates financial responsibility and that you have no trouble making monthly payments again if you were to buy a home.
Bonus points are awarded if you have extra to spare after paying your rent each month. Your mortgage monthly payment may be higher or lower than the rent you pay now, but having extra to splurge is another good sign that your financials are in order and you aren’t cutting it close to having little to nothing every time you pay your rent.
2. You have enough savings
It’s no secret that buying a home is costly, though it reaps valuable rewards. Those that tell you that homeownership is rewarding might fail to tell you about the upfront costs that come with a mortgage. In addition to the down payment you may need to pay out-of-pocket, there are closing costs associated with the process of obtaining a mortgage.
Closing costs are fees associated with your mortgage transaction when purchasing a home. There are various types of these closing costs including fees paid to the mortgage lender, charges paid to the title and escrow companies, and prepaid items such as property taxes, homeowner’s insurance, and mortgage interest. These closing costs usually range from 3-5% of the property’s listing price. While your lender will provide you with an estimate of these fees before moving forward with the transaction, we recommend taking a look at your savings first to decide if you have enough to cover these costs.
Having well-established savings will also come in handy for repairs, new furniture, and other expenses associated with your new home.
3. Your job is stable
Stability in your current job is a key factor in obtaining a mortgage, both for the ability to make the necessary mortgage payments and for deciding the overall risk of your situation. Some questions that a mortgage lender may ask you to get a better read on your employment will be:
- When did you start your current job?
- How long have you been working in your field?
- What does your employment history look like?
This information will let your mortgage lender know if your employment situation is considered low-risk. If you have been at your current job for a couple of years or are even up for a promotion, then it may be a good sign that you’re ready to buy a home.
Even if you just started a new job or have switched jobs due to other reasons, don’t be afraid to explain your situation to your mortgage lender so they have a clear understanding of your overall ability to buy.
4. You want freedom and stability
Have you ever thought to yourself “When I have a place of my own…” more times than you can remember? I know I have. Daydreaming about the perfect home with 4 beds, 3 baths, a big pool, 2-door garage… okay, I think I’m getting ahead of myself. The point is, the more you tell yourself this statement, the more you may be longing for the freedom and stability that renting can’t offer.
When you rent, you’re very limited on what you can do with your environment. Since it’s primarily the landlord’s property you’re renting out, even hanging picture frames on the wall may not be allowed. Yet, on the other hand, those you know who are homeowners are off painting their walls bright colors and installing marble counters in their kitchen. When you buy a home, the unrestricted freedom to change or add what you please is unmatched in comparison to renting.
Stability is also a defining characteristic of homeownership. As a renter, you become vulnerable to unforeseen rent hikes that may cause you to find another place to rent and start the application process all over again. Owning a home provides stability that keeps you at peace with an unchanging monthly mortgage payment. As a result, you pay the same amount every month and don’t need to perform routine rental searches every year.
5. You handle your debt
Debt can come in many shapes and sizes, some of the most common being in the form of student loans, auto loans, and credit card debt. Deciding to buy a home may lead you to believe that already having debt puts you in the worst possible position. Fortunately, it’s not as bad as you think.
In a perfect world, yes, having no debt to fall back on when buying a home can be a game-changing advantage. Luckily, things happen and debt is way more common among Americans than you think. A recent study showed that 80% of Americans are caught up in the chains of debt (Ramsey Solutions, 2021).
If you’re among those with lingering debt, don’t give up hope on buying a home. As long as you handle your debt well, meaning you make payments on time and don’t have a high debt-to-income ratio, obtaining a mortgage will still be feasible.
6. Long-term plans are underway
Your long-term plans where a house can be a great advantage is another sign that buying a home is your next move. A great example is if you recently started a family or plan to start one soon. You will want that freedom and stability to come in handy so that your kids can thrive in your future home and you don’t have to worry about moving around to rent.
Are you planning to have a smooth retirement? Buying a home at an early stage of your life can amount to having a debt-free retirement when the time comes. Let’s say you buy a home now with a fixed rate on a 30-year term. Assuming you’ll retire after 30 years, you won’t need to pay monthly mortgage payments anymore and you’ll have extra money and time to spend on more valuable items, like your family, or for vacation.
Do You Think You’re Ready?
As you go through these signs that tell if you’re ready to buy a home or not, do you think some of them apply to you? In the end, there is no guarantee that you’re ever going to feel fully ready to buy a home. Just like with any life-changing decision, getting cold feet is common. When it comes to feeling ready, we hope these signs helped alleviate your decision.
Keep in mind that these signs are meant to serve as simple questions to think about before you start the mortgage process. In addition to this beginner’s guide, we encourage you to expand your research by seeking advice from first-time homebuyers or a nearby mortgage lender. For first-time homebuyers that you know, try asking them what issues came up when deciding if they were ready to purchase and what made them feel like it was time. Don’t forget to contact a nearby mortgage lender since they are the ones that have the expertise and knowledge to analyze your situation and suggest possible solutions that best fit you.
Before you apply for a mortgage, check out these helpful tips and tricks to get started. We wish you the best of luck!
