These questions will help you evaluate your personal lifestyle and finances to determine if now is the right time for you to buy.
There are few things more satisfying for us than helping a buyer secure their new home. It’s such an honor to be part of the process. Helping you take that next step in life is why we show up every day.
While we definitely want to help you close on the home of your dreams, we also want to be sure you are positioned for long-term success. Is now the right time for you to buy?
The market is great and interest rates are low. But, the right time for you isn’t always dependant on the housing market. Before you dive head first into the home buying process, take a close look at your personal lifestyle and financial situation. Evaluate it the same way you would any business decision.
Evaluate Your Monthly Household Budget
Do you have a monthly household budget? If not, start one now. As a renter, you don’t have to worry about expenses such as maintenance and repairs. As a homeowner, you will. In addition, you’ll have to cover costs such as utilities, water services, insurance, and property taxes.
Remember the Commonly Overlooked Expenses
It’s easy to forget some of those day-to-day expenses, like commuting. But if you move further from work, commuting will cost you more. Plus, your neighborhood may come with homeowner’s association fees.
Determine What You Can Afford
Evaluating your monthly budget is one of the first steps to determining how much you can afford to spend on a house. Use this as the catalyst to identify what size monthly mortgage payment you can make.
How Secure is Your Job?
Before you buy, you definitely need a reliable source of ongoing income. As an employee, this typically means having at least three month’s worth of paystubs. As a sole entrepreneur, most lenders will want to see your tax reports for the last two years, showing two years of consistent earnings.
Do You Have an Emergency Fund?
While a steady job is a necessity, work isn’t a given. If you suddenly find yourself among the job-hunting crowd, will you be able to cover your living expenses? Most lenders would like to see you have enough cash on hand to cover at least three months of your living expenses.
What’s Your Debt-to-Income Ratio?
Your debt includes your current mortgage (if you have one), student loans, auto loans, and credit cards. In most cases, lenders would like to see a debt-to-income (DTI) ratio at, or below, 38 percent of your total income. If your DTI is higher than this, you’ll want to pay down as much of your outstanding debt as possible before you begin shopping for a loan.
Do You Have Cash for a Down Payment?
The prevailing wisdom is to put 20 percent down. However, some loan programs allow you to put down as little at 3.5 percent.
Don’t Forget Closing Costs
In addition to your household budget, emergency fund, and down payment, you’ll also have to cover your closing costs. Typically, these are between three and six percent of your purchase price.
Are you ready to buy a home? Do you have additional questions? Talk to one of our loan officers today.