Are You Ready To Buy A Home?

1)      Your rent is rising

Rent prices can be every bit as prohibitively expensive as mortgage payments, with the added downside of potentially rising every year. Data from Rent.com shows that in January 2020, the national median asking rent was $1,584. As of January 2024, that amount was significantly higher — all way up to $1,964.

Rising rent makes it harder to budget for monthly housing costs and save for other financial goals. When paying rent begins to feel like a bad investment and you want to build equity for the future, it’s time to think about a mortgage, says Bill Golden, a Realtor with Keller Williams Realty Intown Atlanta. “If you’ve seen your rent escalate significantly and you feel trapped, the balance may be tipping toward buying,” he says. “Your monthly outlay could be less on a purchase.”

2)       Your credit score is solid

Some renters can’t make the leap to homeownership because they don’t qualify for a mortgage. Low credit scores are a common reason: A history of late payments or too much debt will hurt your score. One sign that you’re ready to buy a home is having a healthy credit score, says Bruce McClary, a senior vice president at the National Foundation for Credit Counseling in Washington, D.C.

Although borrowers with a credit score as low as 500 can qualify for some home loans, they will be required to make bigger down payments and pay higher rates. A higher credit score gets you better interest rates and loan terms.

3)       Your debt is manageable

Another thing lenders look at when screening mortgage applicants is their debt-to-income ratio, or DTI. This key metric evaluates your monthly debts against your monthly income. The higher your DTI, the more risky you appear to a lender — a lower DTI will also allow more wiggle room in your budget to put money aside for home repairs and other unexpected expenses.

4)      You can afford a down payment and closing costs

“First-time homebuyers don’t have proceeds from another home to help fund a down payment. It’s one of the main reasons why the down payment is the biggest hurdle to homeownership,” says Rob Chrane, CEO of Down Payment Resource.

Down payment requirements are a percentage of the overall home price, and they can vary greatly depending on the type of home loan you get. For conventional loans, 20 percent down is usually required to avoid paying private mortgage insurance. (Some mortgages require much less down, but keep in mind that the less you pay upfront, the more you’re borrowing — and so the more interest you’ll pay over time.)

Buyers should also be ready for closing costs, which typically run from 2 percent to 5 percent of a property’s sale price. The good news is that many of these costs are negotiable. “Because buyers are putting so much of what they have into the down payment, we usually try to get the seller to pay some, if not all, of the closing costs,” Golden says.

5)      Your lifestyle is stable

Buying a home involves a lot of upfront costs that can take a few years to recoup, so if you anticipate moving before you can recover those expenses, homeownership might not be the right choice for right now.

6)      You know what you want

It’s smart to have a good idea of the neighborhood you want to live in and the type of home you want before you begin your quest. Houses, townhouses, condos, duplexes — there are lots of options out there, and each one has its own considerations.

Determine what you need and what is most important to you. Is it being near a good school or a quick commute to your office? Do you mind navigating stairs or having neighbors living above you? Do you want lots of amenities? If you’ve moved to a new city or state to take a job, it might be a good idea to rent until you’ve familiarized yourself with the area. That way, you are more likely to choose a home and neighborhood you’ll be happy in.

*BankRate