Whether you're a first-timer or you've purchased a home before, there comes a pivotal point when considering a new home where you have to ask yourself: Are you actually ready to buy? At first the answer might seem simple, but it's not a mere yes or no. Multiple considerations should factor into your answer, from debt and income to down payments and closing costs. You're not going this alone, though. We've prepared this guide to help you make sure you truly are in a good position to buy. So, are you ready to buy a house? Read on to find out.
As we mentioned in our home-buying budget guide, it's important to go into your home-shopping experience with a firm idea of how much you can afford on housing each month. Getting pre-approved for a mortgage loan can help, but it also doesn't mean you have to spend the full amount for which you get approved. Most personal finance experts recommend spending 30% or less of your monthly income on housing. However, remember that your monthly housing expenditures include more than just a mortgage payment. Utilities, property taxes, HOA fees, and more could add to the total, so you'll need to keep those in mind when preparing your budget.
Do you have outstanding credit card debt? What about student loan debt? Not only can debt leave a bad mark on your credit score (more on that below), it can also severely hamstring your efforts to save and pay for a new home. Beyond traditional debt, what about a car loan? Or perhaps a different kind of personal loan? Of course there are financial circumstances that are unavoidable (like medical bills), but they'll affect your home search all the same. If you still have a significant amount of debt to pay off, that should be your financial priority.
Your credit score will directly impact the terms of your mortgage. Generally speaking, a score of 740 or more will net you better rates. You should aim to pump up your score as much as possible before seeking mortgage approval.
You don't necessarily need to prepare for the typical 20% down payment, especially if it's your first time – most first-time buyers put an average of 7% down. In fact, many loans and programs require even less. So the amount you spend on a down payment will vary, but it's still a payment for which you should prepare. The last thing you want when buying a home is a surprise.
If you're saving up for a $1,000 TV, it makes sense to stop saving at $1,000. The same cannot be said for purchasing a house. If your bank account bottoms out after closing, you're in a bad spot. You'll want to have an emergency fund that can keep you afloat for a few months. It's also a great idea to save up enough to cover your housing costs for at least six months. Beyond emergency planning, there will be things you have to spend money on in your home. From repairs to buying those random items you didn't think of before, you'll continue to pour money into your house after closing. Prepare accordingly.
We're not asking you to predict the future (but if you can, we'd love to know). Rather, where do you see yourself in five years? If you're uncertain about your current job or don't plan on staying in the area for a couple years, you probably aren't ready to leap into a new home. Buying a house is a major investment, and one that's better done on top of firmly planted roots. Once you've found security in a city and job you love, you'll be ready to start shopping.