Buying a house is a life-changing event that is often met with mixed emotions. While you are eager to finally get into a space of your own, you also may feel a level of uncertainty related to your personal finances. After all, you are about to take out a large mortgage to cover your purchase. How can you know if you are ready for this big step? These are the important points to consider.
1. Stable Income
Mortgage lenders often require applicants to have a 24-month history of stable and sufficient income. Changing jobs is generally not a problem as long as there are not huge time periods of unemployment in between the positions.
2. A Healthy Savings Account Balance
Do you have enough cash on hand to cover your down payment, closing costs and a post-closing reserve? The lender’s reserve requirement may equate to at least a few months of your new mortgage payment. From a personal perspective, it makes sense to have a much larger emergency fund than what a lender requires. Aim for a balance that can cover at least six months of your living expenses.
3. Long-Term Plans
When you purchase a home, you are usually committing yourself to live in the property for a few years or more. Depending on market conditions, selling the home earlier could result in financial loss. The National Association of Realtors reports that the average homeowner remains in a home for 13 years.
4. Solid Debt Management Skills
Your mortgage will probably be one of the largest debts that you assume throughout your lifetime. Consider if you have a solid history of keeping up with minimum monthly payments over time. Also, ask yourself if you can control spending and debt accumulation.
5. A Comfortable Budget
If you have not already used a mortgage calculator to estimate your monthly payment along with taxes and insurance, you should do so soon. Prepare a future budget that takes this payment into account. Many other expenses may change after you relocate, and some of these are your car insurance premium and your utilities expenses. Ensure that you can comfortably manage your new budget and still meet your savings goals.
If you are challenged in any of these areas, you may need to make a few adjustments to your lifestyle and habits now to prepare for your purchase. When you feel confident about all of these factors, you can feel positive about moving forward with plans to buy a house.
Contact one of our loan consultants to learn more.