Do you frequently find yourself wondering whether to keep renting or buy a home, or asking yourself, “Am I ready to buy a house?” Here are eight signs that you’re ready to make the switch from renter to homeowner.
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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.
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. If you’ve seen your rent escalate significantly and you feel trapped, the balance may be tipping toward buying, Your monthly outlay could be less on a purchase.
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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.
Keeping your credit card balances low and debt under control is beneficial in many ways. Keeping your balances at or below 30 percent of your high credit limit has a positive influence on the credit score.” If your credit utilization ratio is above that threshold, you may want to improve it before applying for a mortgage. You can do that by paying down your bills and keeping long-standing credit cards open — even after they’re paid off.
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.
To check your score, get a free copy of your credit report and examine it carefully. Look at what’s bringing down your score and focus on improving in those areas, as well as paying down your debt in general. Establishing a credit history or recovering from a credit setback can take time, but the goal of homeownership is still realistic under those circumstances.
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Your debt is manageable
Another thing lenders look at when screening mortgage applicants is their debt-to-income ratio (DTI). This key metric evaluates your monthly debts against your monthly income. The higher your DTI, the riskier 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.
I would highly recommend scheduling a prequalification meeting to see your numbers before you jump into a preapproval. This is just a conversation on income, obligations and DTI calculation. You will see “your” numbers and it will help you make a decision without a formal loan application and credit pull. Schedule it today!
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You can afford a down payment and closing costs
First-time homebuyers don’t have proceeds from the sale of 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.
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, 3 percent down is allowed for first-time buyers, FHA 3.5%, VA and USDA is 0% down payment.
EducateHomeBuyers.com provides education for Washington State’s down payment assistance programs. This is a great opportunity to purchase a home, so take the time to register for one of our classes.
Buyers should also be ready for closing costs, which typically run from 2 percent to 3 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.
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You have enough set aside for maintenance
When a pipe bursts or the air conditioner goes out in a rental unit, you don’t have to worry about paying for it: That’s the landlord’s responsibility. The same goes for property taxes and routine maintenance expenses. When you’re the owner, though, all those costs are your responsibility — so you need to have enough extra money to handle the added expenses.
“If you put everything you have into the down payment to buy a house, then you have no money left to do repairs should they come up. You’re better off spending less on the house so you have some money to make improvements and repairs. And of course, you need homeowners insurance coverage as well, which can be quite pricey in high-risk areas.
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You’ve gone through a major life change
Many renters decide to purchase a home after a major life event, while it’s perfectly fine to buy a house after a big life event, avoid any major changes — like switching jobs or applying for new credit — while you’re in the midst of closing. Your lender will note any change in your financial situation, and in some cases, a change could cause your mortgage application to be rejected.
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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.
A renter who is ready to buy a house should also have job security. A stable job means stable income, which lowers the risk that you might stop making your mortgage payments and default on the loan.
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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. If you buy a condo, for example, you won’t have any yardwork, but you will have monthly homeowners’ association fees in addition to your mortgage payments.
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.
Next steps
Ready to leave renting behind? Before you start looking at homes for sale, start with home buyer education and a loan prequalification. This sets a realistic expectation for what the buyer is qualified to purchase, as well as what financial resources will be needed for closing,” says Curt Tiedeman with NewRez Home Loans.
It’s also important to partner with an experienced local real estate agent. During the house-hunting phase, your agent will use their expertise in your local market to find potential properties that meet your needs and your budget. Once you decide on one, they can help you put together a competitive offer and negotiate with sellers, guiding you all the way through the closing.
Let me know how I can help! Taking your time and making sound decisions based on facts and education is the best way to proceed.
Curt Tiedeman, License NMLS 35554, NewRez Home Loan Division, 206.650.4202, curt.tiedeman@newrez.com
Source: https://www.bankrate.com/real-estate/should-i-buy-house/?tpt=b
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