How To Decide If Buying A House Now Is A Good Idea
Deciding to buy a home really depends on your unique situation. So, if you’re on the fence, here are some conditions worth considering to help make the right decision for your needs.
Buying a home is a big financial commitment. That’s why it’s important to be financially prepared before deciding to buy a house. Look at how much money you’ll need to buy a house.
You’ll need to factor in a down payment, closing costs, home inspection and mortgage payments. Keep in mind, the more you can put down, the lower your monthly payments will be.
To save for a down payment and other costs, it’s smart to make a budget. This way, you know what money you have coming in and going out and how much money you can save every month toward a down payment.
You may also want to put your savings on autopilot by setting up automatic contributions to your house fund. Your bank or financial institution can walk you through the process to set up your auto savings.
Local Housing Market Trends
Home buyers may want to monitor local housing market conditions before determining whether it’s the right time to buy. Again, keeping close tabs on the housing inventory will aid you in assessing if you’re a buyer’s market or a seller’s market.
Buying a home in a buyer’s market is favorable, since you’ll have a variety of houses available with less competition. On the other hand, when current market conditions indicate a seller’s market, less inventory is available, and you will have more competition when bidding on a home.
Mortgage Lender Requirements
Although lending requirements have loosened since 2021, lenders still have relatively strict requirements for loan approval. For this reason, it’s important to get your credit score, debt-to-income (DTI) ratio and other mortgage qualifications in order before buying a house.
Typically, you’ll need a credit score of 620 or above to qualify for a conventional mortgage. However, you could still qualify for an FHA loan if you have at least a score of 500 plus a 10% down payment.
When it comes to your debt-to-income ratio, you’ll want to have at a DTI of 50% or less to qualify for most mortgages. Your DTI shows lenders what percentage of your income goes towards your bills and debt repayment. Therefore, the lower your DTI, the more favorable you are to lenders.
It’s also smart to save a sum of cash for a down payment and closing cost. To avoid private mortgage insurance, you’ll need to have at least 20% of the value of the home. Closing costs are usually 3% – 6% of loan amount. So, you’ll want to ensure you have enough money set aside to qualify for the loan.
Readiness To Buy
When it comes to buying a home, it’s about when the best time is for you. Can you see yourself living in this location long-term? It’s ideal to live in the home for a number of years. This is because you want the value of your home and equity to surpass the expenses of selling your home and buying a new one. Consider closing costs and real estate commissions when reviewing the numbers.
When you’re thinking of buying a home, there are a few things you want to review. First, it’s a lengthy commitment in order to come out on top. How is your job stability? Have you been at your company for a long time, and is there room for growth? Are you financially stable to pay for every cost included?
You also want to look at your credit and debt-to-income ratio. These are factored in when it comes to your loan. The best rates and terms are normally offered to borrowers with a credit score of 740 or higher.
If your credit or debit needs work, you may want to postpone your purchase for now. Rebuild your credit and stable your finances before taking the plunge.