Buying a home is a major decision that should not be taken lightly. As one of the biggest financial transactions you’ll make in life, it has to be done with the right preparation and at the right time.
How do you know you’re ready to buy a home? Here are the signs to consider:
- You’re prepared to settle down
Real estate is a great addition to your portfolio as home values in the US typically appreciate over the years. But it takes time to grow your equity on a property. The more payments you make on your mortgage, the more equity you get. In general, you can expect to realize a profit only when you sell your home after five years or more. Before that, you could end up losing on your investment.
If you can commit to living in the same home for at least five years, and do not see yourself moving soon to follow a job or a lifestyle, buying a home now can be a smart move.
- Your finances are in order
To qualify for a good mortgage, you need to have a credit score of around 680 or higher. You may still get approved for a loan with a lower credit score, but prepare for less than stellar terms.
Lenders will also look at your debt-to-income (DTI) ratio, or the proportion of your total debts, including your potential home loan, to your gross income. The ideal DTI is 36%, but some lenders look for 30% or less.
While controlling your borrowing is essential, the lack of credit lines may also hurt your chances of obtaining a good mortgage. Lenders will need to check your credit history to find out if you’re a reliable payer, and not having enough of it may make them skeptical about your ability to pay.
To obtain favorable loan terms, it’s best to wait until you have successfully improved your credit.
- You have enough cash for a down payment and closing costs
You may get a mortgage with a low or even zero down payment through government backed loan programs, such as FHA (Federal Housing Authority) and VHA (Veterans Housing Authority) loans. However, you should meet the eligibility requirements for these loans, and may have to pay mortgage insurance.
If you have built enough savings for a 20% down payment, you’re better assured of more favorable mortgage terms. In addition, you also need cash to pay for closing costs, including commission and professional fees, home and title insurance, origination fee, and others. The average closing cost in the US is around $7,227.
- You can afford other homeownership costs
On top of your monthly mortgage payments, you also have to consider other expenses that come with owning a home, including utilities, repair and maintenance, property tax, and insurance.
If you’re currently renting, most of these expenses are likely covered by your monthly rent or your landlord. As a homeowner, you are solely responsible for them. Crunch the numbers to make sure you can comfortably afford these regular expenses while still building your savings. You would also want to have enough money left to spend on personal interests, such as vacations, hobbies, gym memberships, and others.
Are you ready to find your dream home? The Pagnotta Homes team can help you find the perfect property in Bridgewater, NJ or other communities in Central New Jersey. Call Cindy today at 908.436.7947 or email to info(at)pagnottahomes(dotted)com.