A home purchase is one of the largest investments that most people will ever make—providing a stepping stone to personal wealth. But this decision comes with a new set of responsibilities, so it isn’t one to take lightly.
Are you ready for the plunge? Here’s how to know when it’s time to transition from renter to homeowner.
1. You’re Sticking Around for a While
There’s no rule barring you from moving after a home purchase. But if you buy a home and sell it shortly thereafter, any equity gained during your short stint as the owner could be lost to realtor commissions (paid out of your proceeds). Ideally, you should live in a house long enough to make a profit. If you can’t commit to an area, continue renting until you’re ready to put down roots.
2. You’re Financially Stable
An underwriter isn’t going to approve a mortgage unless you provide proof of stable, consistent income. But even if you can demonstrate financial stability on paper, you should only buy a house if you believe that your income will remain consistent for the foreseeable future.
Maybe there have been recent layoffs at your company and you fear your job might be in jeopardy. If there’s any uncertainty about your income or employment, wait until the dust settles, and then buy a home.
3. You’ve Saved Enough Cash
Typically, you’ll need a minimum down payment of 3.5% to 10% for an FHA home loan, and a minimum of 3% to 5% for a conventional home loan. You may also responsible for closing costs, which average about 2% to 5% of the sale price.
Keep in mind that you should also have some cash left in reserves after purchasing a home. Don’t deplete your savings account on a home purchase; always maintain a cushion.
4. You’re Prepared for the Responsibility of Owning
Renters have the luxury of calling up a landlord whenever there are property issues like broken appliances, pests, etc. Once you become a homeowner, you’re responsible for all maintenance and repair costs, hence the importance of maintaining an emergency fund.
5. Your Credit is in Good Shape
You don’t need perfect credit to buy a house. All the same, a higher score helps you qualify for a lower mortgage rate, saving you money in the long run.
Depending on your mortgage program, you’ll need a minimum credit score of 600 for approval. To qualify for the most favorable rate, however, wait until you have a score of 700 or higher.
6. You’ve Researched Your Options
It’s important to understand the types of mortgages available before buying a home. Home loans range from conventional to government products; adjustable to fixed-rates; and 15-year to 30-year terms.
A mortgage that’s advantageous for a friend or relative might not be the suitable choice for you. Do your due diligence and speak with one of our mortgage experts at FirstBank Mortgage.
Expert mortgage advice is only a phone call away. Our mortgage bankers can advise you through the process and customize a home loan that’s right for your unique circumstances.
If you’re thinking about buying a home, it’s important to have a trusted advisor to answer your questions and create a plan that’s best for you and your financial situation. At FirstBank Mortgage, our goal is to help our customers get to a better place – whether that’s in a new home or a new financial position. To search for a loan officer in your area, click here.