Should I Buy A House? Everything To Consider
It’s possible that a house is the biggest purchase you’ll ever make. And although becoming a homeowner can feel like an exciting new chapter, you shouldn’t take on homeownership until you’re ready.
If you’ve been asking yourself, “Should I buy a house?”, you’re in the right place. Read on for a better understanding of what it takes to become a responsible homeowner and to gauge if you’re ready for next steps.
6 Reasons Why You Should Buy A House Now
Next to purchasing a car or getting a college education, buying a house is one of the biggest financial commitments you can make during your lifetime. With this in mind, it only makes sense that you prepare accordingly by finding out how much house you can afford — ensuring that such a big purchase won’t leave you in a worse place than you were before.
Let’s go over six telltale signs that you may be on the right track to buy a house.
1. You Have Money Saved For A Down Payment
Saving enough money for a down payment is usually seen as the biggest hurdle to becoming a homeowner, with a presumption that you need 20% of a home’s value set aside for the down payment alone. While saving for a big down payment is a good idea, there are financing options which don’t involve such a lofty sum.
You may be able to get a conventional loan with as little as 3% down, or an FHA loan with just 3.5% down. Some options, like Department of Veterans Affairs (VA) loans and U.S. Department of Agriculture (USDA) loans may not even have a down payment requirement at all. Rocket Mortgage® does not offer USDA loans.
Keep in mind, however, that if you can afford to put more money down, larger down payments can help you avoid private mortgage insurance (PMI), lower your monthly payment and result in less interest paid over the time of the loan.
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2. Your Debt-To-Income Ratio Is Low
For some of us, it can feel like a challenge just to imagine a debt-free lifestyle but having debt doesn’t have to stop your homeownership dream. Although debt is considered when getting a mortgage, knowing how to manage your debt plays a significant role in your financial stability.
While you should always aim to be as close to debt free as possible, just taking steps to lower your DTI (debt-to-income ratio) is a great place to start. Your DTI is the percentage of your gross monthly income that goes toward paying off debt. It can be calculated by dividing your recurring monthly debt by your monthly income.
Put simply, DTI is another indicator lenders can use to gauge how much debt and how much cash flow you have. The higher your DTI and the more debt you have, the more susceptible you are to unfavorable loan terms when trying to finance a home. In general, lenders want to see a DTI of 50% or less, including your mortgage payment.
3. You Have A Strong Credit Score
Credit scores play an essential role when it comes to financing a home purchase. Lenders will look at your credit score to evaluate how you’ve handled debt in the past and to determine the details of your loan, like interest rates and how much money they’ll lend you.
To put yourself in the best possible position for becoming a homeowner, having a healthy credit score is key. This means making on-time payments for any debts you may have (like student or auto loans, credit card or phone bills). In some cases, like if you’re a recent college graduate, you’ll need to start building up a credit history.
Although credit minimums vary both by lender and by loan type, having a credit score over 620 is usually the best place to start. Of course, the healthier your credit is, the more flexibility you’ll have when it comes to financing down the road.
4. You Desire Security And Stability
Getting a mortgage will enter you into a long-term contract, with the average loan term being 30 years. Although you’re not bound to that home for three full decades, with the home buying process being lengthier than say, a lease, it’s best not to buy a house unless you’re confident you’ll be in that area for a substantial amount of time.
If you’re traveling a lot for work or leisure, or if you don’t know where you’re planning to plant roots yet, you may want to hold off on buying a house for the time being. However, if you crave the freedom to control and personalize your own living space while avoiding rent increases, it’s worth it to consider the costs of renting versus buying.
If you’re ready to settle down in your forever home, why not start exploring the steps to buy a house?
5. Your Income Is Stable
One of the necessities for buying a new home is financial stability, which means having a reliable stream of income. Income stability makes it possible to continue saving for emergencies and unexpected expenses that can arise when owning a home. While there’s no income requirement for purchasing a house, how much money you’re bringing in will affect your DTI and whether you can make monthly payments on time.
Consider figuring out how much disposable income you have with your current lifestyle and compare the figure with an approximate monthly mortgage payment for the kind of home you have in mind. This can give you a better idea of what you can afford right now.
6. You’re Preparing For The Future
If you have a big family or are planning to in the future, you might also decide that buying a house is the best option for you. With your family’s best interest in mind, it’s important to carefully consider what comes with buying a prospective home; location, proximity to goods and services, as well as home features such as yard space or a home office are just a few of many aspects to ponder.
2 Reasons You Shouldn’t Buy A House – Yet
The prospect of homeownership can be exciting. But, if you’re not financially prepared for such a huge step, it could end up being more burdensome than rewarding. Here are just two of many reasons why you might hold off buying a home for now.
1. No Emergency Fund
Having an emergency fund is essential. It can prevent you from depleting your savings or going into debt when unexpected costs arise — and as a homeowner, this could very well happen.
If you don’t yet have an emergency fund, there’s no time like the present to start building up one. Consider implementing the following suggestions:
- Calculate how much you need. Generally speaking, you’ll want to have 3 – 6 months’ worth of living expenses saved up. Living expenses include your mortgage or rent, groceries, insurance, car and credit card payments and any other essential bills.
- Focus on saving what you can. Even if you can’t initially save up a lot, the important thing is that you just start saving. Anything is better than nothing, and over time your emergency fund will grow.
- Create an emergency budget. An emergency budget includes only the basic necessities and payments – helping you to cut down on spending and make your money last as long as possible.
- Save your tax refund. If you receive a tax return from the IRS, it may be wise to put that money into your emergency fund. This way, you’ll be able to grow your fund without dipping into your monthly expenses.
2. Financial Concerns
Financial concerns such as unstable income, frequent job changes and high amounts of debt can affect the best of us. However, such concerns can be a barrier to homeownership. So, it’s a good idea to address these roadblocks and bolster your financial health before taking on the added responsibility of homeownership. Learning how to save for a down payment now is one good way to do this if you’re looking to settle down in the future.
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FAQs: Should I Buy A House?
Let’s look at some of the most frequently asked questions when it comes to buying a house.
Is buying a house worth it?
Whether buying a house is a worthy financial investment is up to you and your preferences. If you know you want to settle down, then buying a house may be a good place to start. If you’re interested in building up real estate equity rather than sinking money into rent, buying a house may be the better option.
Just be sure that this financial commitment is worth it to you – whether it’s financially or to build a future – before moving forward.
What is the downside of buying a house?
While there are many benefits of owning a home, there can also be some drawbacks. For example, buying a house can come with high upfront costs (your down payment and closing fees), maintenance and repair expenses, property taxes and other regular fees. There’s also less flexibility and more responsibility involved as a homeowner.
How long does it take to buy a house?
There’s a lot that goes into buying a house. For this reason, it’s pretty much impossible to pinpoint exactly how long the buying process will take. Depending on the current real estate market and your specific situation, it could take anywhere from 6 months to a year.
Is it possible to buy and sell a house at the same time?
Yes, it’s possible to buy and sell your home at the same time. However, since this can be a stressful ordeal, there are many factors to take into consideration before deciding to do so. Some of which include but are not limited to: the current market for both buying and selling, the professional help available, and your financial situation and options.
When should I buy a house?
Each season has its share of pros and cons when it comes to home buying. Warmer months do tend to offer more options to choose from (but may also bring about a more competitive market). Colder months may leave more room for real estate negotiations but fewer available properties to choose from.
Figuring out the best time to buy a house can be unique to you. Do you need to see the lawn during warm months before committing to a home? Is more flexibility during negotiations important to you? Want to avoid bad weather when traveling to open houses or showings? Your preferences will play a big role when determining the right time for you to buy a house.
The Bottom Line
Buying a house is no small feat, but if you’re financially prepared and looking to settle down, it could be time to start your home buying journey. Do your best to build up your credit, lower your DTI and learn how much home you can afford before taking the leap.
If you think you’re ready to become a homeowner, apply for a mortgage today.