6 Clear Signs You’re Ready to Own a Home

65 percent of Americans are homeowners – and for good reason. Your home isn’t just your little paradise where nobody can tell you what to or not do. It’s also a solid investment that appreciates in value over them, a source of cash in terms of a home equity line of credit, and offers some tax benefits.

It’s no wonder homeownership is the cornerstone of the American Dream. Homeownership doesn’t come easy, though. It’s a major financial commitment that goes on for a long time.

This is why you should only own a home when you’re truly ready to own a home. This begs the question: when are you ready to become a homeowner?

There are clear signs to look out for. Read on to learn more!

Your Debt-to-Income Ratio Is Great

Taking out a mortgage is the only way for most people in the U.S. to become homeowners. A mortgage is a long-term loan and will easily become your biggest debt once approved.

And if you’re anything like the average American, you already have others loans you’re servicing, likely student and auto loans. Does your present financial position allow you to take out another loan, especially one that’s as big as a mortgage?

This is where debt-to-income ratio comes in.

Mortgage lenders have their debt-to-income requirements. Your mortgage application will be denied if your income is too squeezed for their liking.

However, you can get a pass. And if you do, it doesn’t necessarily mean you’re ready to take out a mortgage and become a homeowner just yet. This is because financial positions can change. What if you lose your income suddenly?

You’re ready for homeownership when your debt-to-income ratio is not only great but also when you don’t have to worry about servicing your debts.

Income Security

Debt-to-income ratio goes hand in hand with income security.

You can only manage to meet your debt obligations when your income level remains constant or doesn’t fall below your monthly debt obligations.

If you’re formally employed, a steady paycheck ensures you won’t fall behind or default on your loans. But how sure are you that you’ll be in employment next year? If you’ve got a contract, great, but even contracts can be terminated.

You need great income security to be a homeowner, especially if you’ll be getting a mortgage. Ideally, you want to be permanently employed (government jobs) or have multiple incomes. Losing your income when you have a mortgage to pay off can have disastrous consequences, such as home foreclosure.

Good Credit

You need a credit score of 620 or higher to meet the credit score requirements of a conventional mortgage. Government-backed mortgages like the FHA loan have slightly lower credit score requirements.

If your credit score is bad, you aren’t ready to be a homeowner. It’s difficult to get approved for a mortgage, however secure your income is. Take steps to knock down rebuild Sydney it before you start looking for a mortgage.

You shouldn’t aim at having the minimum required credit score. A better credit score gets you better loan terms, such as a lower interest rate. Considering the long-term nature of a mortgage, even a 1 percent reduction in your interest rate will make a big difference.

Able to Make a Down Payment

The minimum down payment on a house is 3% of the closing price if you’re taking out a conventional loan.

So, if a house closes at $500,000, you will put at least $15,000 down. Your lender might ask you to put down a lot more depending on your credit score and/or debt-to-income ratio. Generally, riskier lenders will make a big down payment.

Putting down some money on a house isn’t a big challenge for most prepared buyers, but it’s a good indicator of homeownership readiness nonetheless. If you’re not in a position to raise the deposit, you probably aren’t ready for homeownership.

Able to Meet Ongoing Homeownership Expenses

A good number of prospective homeowners don’t have a clear grasp of the financial commitment that’s needed after buying a home. Yes, closing costs are the biggest deal but don’t downplay the expenses that will come after.

For starters, there’s insurance. If you’re taking out a mortgage, most lenders will require you to purchase home insurance before the deal can be closed.

But if you’re a cash buyer, you have to budget for annual home insurance as a separate expense. Click here for a home insurance checklist for new buyers.

Depending on where your home is located, you might need additional insurance policies, such as flood insurance.

There is the cost of routine maintenance and repairs. Especially if you’re buying a home that isn’t in the best of conditions, ensure you have an estimate of how much you need to spend on repairs and maintenance before you make the purchase.

A Homeowner’s Mindset  

It’s of no value being financially ready for homeownership if you don’t have the mindset of a homeowner.

Buying a home comes with an element of longevity. Your first home might not be your forever home, but it’ll likely be your residence for several years. As such, if you’ve reached a stage where you feel you’re ready to settle in one location, you have a homeowner’s mindset.

Your personal circumstances will also play a big role when you’re trying to determine whether you’re ready for homeownership. If you’ve got a job that keeps you traveling, for instance, or you love job-hopping, homeownership might not be for you just yet.

Are You Ready to Own a Home?

Homeownership comes with great financial responsibility and personal commitment. It’s not for everyone, and even if it’s for you, the time needs to be right. With this guide, you now know how to establish whether you’re ready to own a home.

Keep reading our blog for more homeownership advice.