You’ve saved up for a down payment, narrowed your choices of neighborhoods and drawn up a wish list of what you’re looking for in your first home, but now you’re getting cold feet. How do you know if you’re really ready to buy a house? To help put your mind at ease and make sure you’re really prepared for this purchase, we’ve put together a list of questions to ask yourself before buying a new house.
Can I afford to buy a house?
Before viewing properties, remember purchasing a new home will cost more than just the down payment. You’ll also need to cover closing costs, which are typically between 2-4 percent of the total purchase, as well as moving costs, and possibly new furniture and any unexpected renovations for the new home. It’s best to have a little extra cushion in savings for additional factors like this.
Can I afford the monthly mortgage payments?
Most lending companies will grant a loan to a homebuyer if the monthly mortgage payments do not push the buyer’s debt-to-income (DTI) ratio above the recommended 43 percent. This means the total monthly payment debt, including your mortgage, credit cards, personal loans, other loans, and car payments, should not exceed 43 percent of your monthly income. You may want to work out these figures on your own prior to applying for a loan so you have an idea of how much you can afford. You can use our online Debt-to-Income Calculator to help.
When determining whether you can actually afford your monthly payments, though, remember there’s more to home ownership than a monthly mortgage payment. Be sure to include calculations for taxes, insurance and utility bills. A mortgage lender should be able to provide some of these numbers for you, so be sure to ask. You can also calculate a mortgage payment with our online calculator.
Am I ready to settle down?
The average length of time homeowners in the United States live in a house is only seven years. Buyers who don’t plan on staying in a home long-term may end up incurring a loss. Consider factors like your career, family planning, changing demographics of a neighborhood when trying to answer this question. Experts advise buyers to only purchase a home you plan on living in for a minimum of five years. Have you created your five-year plan? If not, now’s the perfect time to sit down and evaluate what your next five years might look like.
Does buying a house in my neighborhood make financial sense?
Many Americans view homeownership as a rite of passage into adulthood, but that doesn’t mean purchasing a home always makes financial sense. In some neighborhoods, rentals are relatively cheap while houses sell for far more than they’re actually worth. In these neighborhoods, buying a home may not be the logical choice, even if you can easily afford the purchase. Make a list of pros and cons for various neighborhoods, along with the cost of renting vs. owning to make the best decision.
Is my credit score high enough?
A fairly decent credit score is necessary to qualify for a home loan. Most lenders will only grant a home loan to borrowers with a credit score of 650 or higher. If your credit score isn’t quite there yet, try these tips and over a period of months you should start to see an increase in your score.
- Pay more than your minimum payment each month, anything extra helps
- Pay all your bills on time
- Payoff your credit card bills in full each month
- Keep credit utilization at a minimum
- Don’t open any new loans or credit cards
As a member of Partner Colorado, you can view your FICO® Score through our Mobile Banking App. Your FICO® Score is based on information from your Experian credit report and checking it will help you understand your credit better and avoid surprises. Visit our website to learn more about the components of your FICO® Score and find frequently asked questions.
Do I have a plan in place for repairs?
When a renter has a leaky faucet, they call the landlord and no longer have to worry about the problem. As a homeowner, if you have a leaky faucet, it becomes your problem and your expense. You can either fix it or hire someone to do the job, but it’s a good idea to have a plan in place before anything needs to be fixed. If you’re handy enough to handle repairs on your own, you’ll need to be ready and willing to give up some of your free time to tend to things around the house. Otherwise, it’s best to have savings put away to pay for unexpected home repairs.
Sometimes, an appliance or a system in the house will be broken beyond repair and will need replacing. It’s a good idea for homeowners to have enough money stashed away in an emergency fund to cover these purchases. Open a savings account to get your emergency fund started.
It’s perfectly normal to feel hesitant about what may be the biggest purchase of your life. However, buying a first home is an exciting milestone that only happens once in a lifetime. If you think you’re ready to take this step, first make sure this purchase is right for you financially and practically.
If you feel like you need a little help walking through the home-buying process, check out our online Go-To-Guide for Home Buyers. You’ll find helpful information about the various types of home loans, essential tools to help you evaluate which type of loan is right for you, qualification requirements to simplify the process and other tips for finding the perfect home.
If you’re ready to get started on your home loan application, call us at (877) 725-8913 or apply online. We can help you determine the best type of home loan for your first house.