Renting allows you to move whenever you want without having to worry about homeownership’s duties. But eventually, a lot of people long for their own house. A good place to start creating financial security is by buying a home. As you reduce your mortgage, you increase your home’s equity. And which is a significant source of money. Before making a choice, it will be beneficial for you to learn as much as you can about the home-buying process. Your confidence in the investment you’re about to make will increase. The best defense against unforeseen expenses is knowledge.
So, do you constantly wonder if you are ready to buy? If you can answer “Yes” to these questions, most definitely you are.
1. Is Your Current Rent Rising?
Budgeting for monthly housing costs becomes more difficult as rent rises. According to Rent.com, rental rates have increased significantly across the country over the past few years. As per its data, the median rent across the country was $1,682 in 2020. This was when the pandemic was beginning. And now, 2023 will bring it up to $1,937. When paying rent feels like a poor investment and you want to accumulate equity for the future, it’s time to consider a mortgage.
2. Do You Have a Good Credit Score?
A better credit score is one indicator that you’re prepared to purchase a home. Even though applicants with credit scores as low as 500 may be eligible for some types of mortgages, they will have to put more money down. And they need to pay higher interest rates. That is why you can get better interest rates and loan terms with a good credit score. But if you have a low credit score, it’s not yet the end for you. Here’s what Bruce McClary, senior vice president at the National Foundation for Credit Counseling in Washington, D.C. says:
“Establishing a credit history or recovering from a credit setback can take time, but the goal of homeownership is still realistic under those circumstances.”
3. Is Your Debt Manageable?
There are many advantages to keeping credit card balances low and debt under control. The debt-to-income ratio is one factor that lenders consider when vetting mortgage applicants. Your risk to a lender increases as your DTI rises. However, some conventional loans permit a DTI of up to 50%. But a lot of lenders prefer no more than 43%. And according to bankrate,
“Keeping your balances at or below 30 percent of the available credit limit has a positive influence on the credit score.”
4. Can you Afford a Down Payment?
The amount of the required down payment is based on the total cost of the house. And they can differ significantly depending on the type of mortgage you obtain. A 20 percent down payment is typically needed for conventional loans to avoid paying private mortgage insurance (PMI). Some Federal Housing Administration-insured mortgages only need a 3.5 percent down payment. Some mortgage products that call for just a 3 percent down payment are like Fannie Mae and Freddie Mac.
“There is a wide range of programs for homebuyers today — we track more than 2,500 homeownership programs across the country administered by federal, state, county or local government agencies, nonprofits and employers,” – Rob Chrane, CEO of Atlanta-based Down Payment Resource
The Bottom Line
Now, the next step for you is to determine if you are ready to buy your home. Make sure you can still accomplish your other financial objectives as you decide whether or not to buy a home. However, the assistance of credible real estate experts will be your best resource.
What To Do:
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