How to Know if You're Ready to Buy a Home

Seeing whether You're Ready for the Commitment of Buying a Home

Purchasing a home is a major commitment, so take the time to assess your current situation and how it can change in the future before you start looking at houses and comparing mortgage rates.

Think about it:

  • In the upcoming years, do you have any major life plans that might affect your finances, such as establishing a family or moving jobs?

  • Can you make a five-year minimum commitment to a house?

  • Do you earn a consistent living?

  • Are you willing to pay a professional when something breaks or are you certain you can handle home repairs (or can take the time to learn)?

Buying vs. Renting a House

Every choice has advantages, so think about what's important to you.

Advantages of Buying

  • No landlord entails that you are free to transform your home whatever you see fit.

  • The interest you pay with your mortgage payments may be tax deductible, unlike rent payments.

  • To prevent your monthly payment from increasing when the market changes, you can locate a mortgage that is matched to your needs and financial objectives.

Advantages of Renting

  • Home repairs and improvements are frequently your landlord's responsibility.

  • Both homeowners insurance and real estate taxes won't be required of you.

  • Since you won't have to rent a new place or sell your current one, moving may be simpler.

How to Assess Your Financial Situation Prior to Purchasing a Home

One of the biggest investments you'll probably make is a home, so it's crucial to ensure your financial situation is in order. To get a handle on how much money you're making and spending each month, start by analyzing your bank accounts and billing records. If you intend to purchase a home with another person (such as your husband), examine their financial situation as well. Then, ask yourself the following questions:

  • Do you have a steady job or income?

  • Are you able to deposit some money into a savings account each month?

  • Do you have a strategy in place to handle debt, such as automobile and student loans?

  • Do you normally make prompt payments on your credit card debt? Maintaining a low credit card balance will improve your ability to obtain a mortgage.

  • Do you have some money already saved up for emergencies? A good rule of thumb is to have three months' worth of expenses set aside.

  • Are you prepared with a down payment and closing costs in mind? You shouldn't use your emergency funds on this or you can find yourself in a bind.

Determining Your Down Payment

The amount of the down payment is dependent on the type of loan and the price of the home, but the more you can contribute, the cheaper your monthly payment can be and the more interest you can save. For conventional loans, a down payment of at least 5% of the purchase price is usually necessary. FHA loans only need 3.5% down.

You'll also need to pay closing costs, or fees related to completing and securing your loan, in addition to your down payment. These can change based on the mortgage's terms and the cost of the home, but are often between 2% and 5% of its value.