Renting is great when you first start as an adult, but there comes a time when you’re ready to move on. If you’re thinking about becoming a first-time home buyer, here are ten signs that tell you it’s time.
How to become a First-Time Home Buyer
Everyone has different timelines and reasons to buy a home, but if you’re still renting, here are ten signs you might be ready to own your first home.
Check out these signs and see how many boxes you check. If you’re closer to buying a home than not, let Loan Factory help you get pre-approved for a loan.
1. You’re Ready to Settle Down
When you rent, you can move almost as often as you want. Most renters sign a one-year lease agreement, which means you can move at least once a year. However, if you’re tired of the nomadic lifestyle and are ready to settle down and not move so often, you might be ready to buy a home.
Buying a house gives you a much greater sense of community and belonging. Setting down roots is like saying, ‘I’m here for the long term; let’s make the best of it.’
2. You’ve Maximized your Credit Score
Your credit score is one of the most critical factors when securing mortgage financing. You might be ready for mortgage financing and to buy a home if you’ve mastered the art of having a great credit score.
You don’t need perfect credit to get financing, but aiming for a score of at least 660 is desirable. You’ll have a chance of getting more competitive rates and terms when you have a good credit score to prove your financial responsibility.
3. You’ve Paid your Debts Down (or Don’t Have Any)
Owning a home with a lot of debts is tough to manage. Not only must you stay on top of your debts, but you must pay the mortgage too.
You may not qualify for a mortgage if you have too many debts because lenders can only allow a certain debt-to-income ratio. On average, they allow DTIs of 43% or lower. So if your debts take up more than 43% of your monthly income, you might not get approved for financing, or if you do, it won’t be at the best rates.
4. You’ve Saved for a Down Payment
You're in good shape if you have money to put down on a home. A couple of loan programs don’t require a down payment, but they are for veterans of the military or low-income families who live in urban areas.
If you’ve been saving for a while, consider putting down 10% - 20% on the home. If you don’t have that much, it doesn’t have to stop you from being a first-time home buyer. FHA loans allow down payments as low as 3.5%.
Don’t forget, in addition to the down payment, you must cover the closing costs. They usually cost 2% - 5% of the loan amount.
5. You have a Stocked Emergency Fund
Your emergency fund should have at least three to six months of expenses. This ensures you can cover your living expenses should you lose your job or fall ill. In addition, the emergency fund should sit in a liquid account, which you don’t have easy access to.
6. You Understand the Cost of Home Ownership
Owning a house is a lot different than renting. You don’t get to call a landlord to fix the issues when something goes wrong. Instead, you must fix them (or hire someone). Therefore, it’s essential to understand the cost of maintaining a home and making major repairs.
On average, homeowners spend 1% of the home’s value on maintenance and repairs annually, so keep that in mind as you decide if you’re ready to buy a home.
7. You Love your Job
Before you buy a home, establish yourself in a career or at least a job you’ll keep for the foreseeable future. Of course, your job and income will help qualify you for the loan, but knowing that you like your job and it’s stable ensures you can afford the mortgage moving forward.
This doesn’t mean you can’t change jobs after buying a home, but having stability will ensure you get on your feet for the first couple of years.
8. You Need More Space
If you’re tired of bumping elbows with your roommates or running out of bedrooms for your kids, it’s a sign you’re ready to own a house with more space. Even a townhouse might buy you more room and give you freedom. So you don’t have to share such close quarters with those you live with and your neighbors and can feel more freedom.
9. You want the Freedom to do What you Want with your House
Renters can’t paint walls, decorate a house, or make major changes without asking the landlord. However, when you own a home, you can do what you want within reason. Some changes might require a permit from the city or county, but overall, you have more freedom in what your house looks like and its features.
10. You Need the Tax Deductions
You might need the mortgage interest deduction if you itemize your tax deductions. You can deduct interest on up to $750,000 in mortgage debt as long as it was used to buy a home. In addition, you may be able to deduct up to $10,000 in real estate taxes.
Everyone buys their first home on their own timeline, but these signs can help you explore your options. You can buy a house, townhouse, or even condo and have more freedom than renting an apartment or house.
Why let someone else earn equity in a property when you can invest the same amount of money and call yourself a homeowner? If you’re ready for the commitment, let’s explore your options for mortgage financing to make your dreams come true.