September 26, 2021
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Hot! How to Know You are Financially Ready to Buy a House

Are you dreaming of buying your first home? Don’t get carried away in the excitement of it all. Before you make any decisions, it’s important to make sure you’re financially prepared for such a big commitment.

Read on for everything you need to consider before buying a home!

You Have a Budget You Can Afford

One of the biggest parts of buying a home is crafting a realistic budget.

When creating your real estate budget, a down payment isn’t the only figure that matters. You’ll also want to calculate these significant costs:

  • Monthly mortgage payments and interest
  • Yearly property tax
  • Home insurance costs

If you don’t have a thorough budget in place, it’s possible that you may not be financially prepared for this commitment. Spend some time crunching these numbers before you begin crossing off listings on your property search.

You Qualify for Some Type of Mortgage

Let’s be honest—most people don’t buy a house upfront.

Property is expensive, and a mortgage is simply part of life for most homeowners. While taking out a loan may be complicated, there are ways to make it work in your favor. Depending on your financial situation, you may qualify for at least one type of home loan:

  • Conventional mortgage – A conventional mortgage will typically have high credit score requirements and down payments. If you meet these standards, you’ll be able to score a payment plan with low-to-moderate interest rates.
  • VA loan – Veterans Affairs loans are zero-down, low interest home loans for veterans. Your military status can help you qualify for this type of mortgage and allow you to purchase a home without draining all your funds.
  • USDA loan – USDA loans are designed to help farmers and ranchers purchase land in rural parts of the United States. Candidates can qualify for this type of mortgage with a minimum credit score of 640 to receive a low interest rate.
  • FHA Loan – A Federal Housing Administration (FHA) loan is a government-backed mortgage that’s meant to help low-income homebuyers. This type of loan has flexible credit score and down payment standards.

If your credit score, income, and down payment don’t meet the standards for any of these loans, it’s possible that you’re not quite ready to buy a home just yet.

You’ve Built Credit

Credit is the key to homeownership.

With a purchase as large as a home (both literally and monetarily), lenders and sellers want to make sure you’re a trustworthy buyer before accepting your offer. One of the biggest factors these agencies will look at is your credit score. Most scores typically fall into one of these categories:

  • Poor – A score between 300 and 629 is considered poor. Lenders will almost always deny a candidate with a score this low.
  • Fair – If your score is between 630 and 689 it’s considered fair. Certain lenders may accept you, but a conventional mortgage may be out of reach (fortunately, you may qualify for other loan options).
  • Good – A good credit score will fall between 690 and 719. You won’t run into many roadblocks with a score in this range.
  • Excellent – If your score is between 720 and 850, you should have no trouble being approved for any type of loan, even conventional and jumbo mortgages.

First-time homebuyers may struggle to meet credit requirements, simply because they lack financial experience under their belt. Responsible credit card usage and paying off your car and student loans are some of the biggest ways people boost their credit score. 

Congrats, You’re on Your Way!

If you read through this checklist and you’re still feeling confident, that’s great! It may be time to settle down and purchase your first home.
If you’re lacking any of the items on the list, you might want to hold off on purchasing a home at the moment. Don’t let this discourage you, though. With a little time and a lot of hard work, you’ll be on your way to financial readiness in no time.

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