Signs that Indicate You Can Stop Renting and Buy Your Own Home
Buying vs. renting a home certainly has its pros and cons. Some think renting is a waste of money and you only pay off another person’s mortgage. However, it certainly does offer flexibility as you don’t have to be tied to a single place.
If you’re willing to take the plunge and buy a home, how can you know your readiness for it? Buying a residential property is a costly and big effort, but it can be justified based on emotion and logic. In this article, we give you information to make you aware of the signs that show you’re prepared to become a homeowner.
Rising Rent Payments
Increasing rental prices are the main reason why many people choose to buy their own home. In some property markets and neighborhoods, the rental cost is higher than the median monthly mortgage amount for a single-family house. In this case, you are better off buying a house since your mortgage will be consistent, and can help you become the owner of a large asset.
Mortgage companies and lenders assess your employment record before approving your loan. It’s a big plus if you’ve worked for about two years in the same firm or field. Plus, you need to show that you have a steady income that will enable you to pay your loan installments easily.
If you’re a gig economy employee or freelancer, you’ll need to show that you’ve possessed a steady income source for at least two years through documents like tax returns, W-2s, and others. Lenders give importance to a steady job with stable income that reduces your risk of non-payment.
You need not be fully debt-free when you file your application for a home loan. However, you shouldn’t have high debt compared to your income, and you need to show that you can manage the additional responsibility of making monthly mortgage payments. Lenders will calculate your DTI (debt-to-income) ratio, which shows the amount of your income you’ll spend toward paying your debts.
It is ideal to have a DTI ratio of less than 43% to qualify to get a mortgage. Therefore, focus on keeping your debt manageable to boost your chances of pre-approval. Evaluate your expenses even while renting and eliminate unnecessary debt in order to boost your chances of becoming a homeowner.
You Have Enough Savings
Most potential home buyers find it difficult to save enough for the down payment. This saving is made harder by credit card dues and student loans. Therefore, a steady job and income can help you save money to pay for the costs of buying a home.
For FHA (Federal Housing Administration) loans, you only need to make a down payment of 3.5% of the property’s price. Also, USDA (U.S. Department of Agriculture) loans and VA (Veterans Affairs) loans do not require any down payment. Therefore, do not think that you need to save to pay 20% down payment as cheaper options are available.
In addition, you’re ready to buy your own home if you have savings to pay for homeowner’s insurance, maintenance funds, property taxes, closing costs and other expenses.
Are you ready to settle down in one location or do you think you’ll need to move after some time? If you think you’ll be shifting places after one or two years, you should stick to renting as you can move when you wish. Renting also allows you to test a few areas before selecting a suitable one for home purchase.
If you’re prepared to settle in a place you like, have a secure job and income, and see yourself staying in that location for a few years, then you’re ready for homeownership.
You Have a Good Credit Score
A poor credit score is one of the biggest obstacles to buying a home. Good credit indicates you’re ready to borrow a sizeable amount and capable of paying its interest. Ideally, you should have a FICO score of around 690 or higher. But some loan programs favorably consider even those with a score of about 500.
If you have a healthy credit because you pay your debts and make timely payments, you can qualify for mortgage programs with lesser down payments. Thus, your credit score is an important indicator of your readiness to buy a home.
Are You Ready to Handle Home Maintenance Tasks?
A 2019 report by the National Association of Realtors states that 29% of buyers cite the ambition to become a homeowner as the chief reason for buying a residential property. As a homeowner, you’d need to manage upkeep costs, and maintenance and repairs. If you don’t want the responsibility of handling these tasks, then you’re better off staying a renter. This is the main reason why many people decide to rent rather than take advantage of low interest rates.
However, if you like home maintenance and love fixing things, and if you’re ready to spend your weekends and holidays mowing the lawn and doing other household work, then you’re prepared for homeownership responsibilities and becoming your own landlord.