Buying a home is a major life decision, carrying huge responsibility and financial commitment. But how do you know when you’re truly ready to buy a house? In this blog, we’ll dive into the ways that you can get ready to buy a home and share how the Onward Real Estate Team at Keller Williams can support you on this journey.
- Your income to debt ratio is a crucial factor in determining your readiness to buy a house. Lenders typically look for a ratio of 43% or lower, meaning your total monthly debt payments (including the new mortgage) should not exceed 43% of your gross monthly income. A healthy income to debt ratio demonstrates your ability to manage your financial obligations while paying for a mortgage.
Savings for a Down Payment:
- Typically, you’ll need a down payment to purchase a home. The amount required can vary, but having a substantial down payment can lead to lower monthly mortgage payments and may even help you avoid private mortgage insurance (PMI) and Mortgage Insurance Premium (MIP). If you’ve been diligently saving for a down payment and have reached your target amount, it’s a positive sign that you’re ready to buy a house.
Clear Financial Goals:
- Understanding your financial goals is essential before buying a house. Are you planning to stay in the area for a period of five to seven years? Are you ready to commit to the responsibilities of homeownership, like maintenance and repairs? Clarifying your financial goals will help you make informed decisions about the type of home you want and can afford.
- Owning a home means unexpected expenses can arise, such as a leaky roof or a broken furnace. Having an emergency fund set aside for these unexpected events is a sign of financial readiness. Ideally, you should have enough savings to cover at least three to six months’ worth of living expenses in addition to your down payment and closing costs.
- Job stability is another crucial factor to take into account. When lenders evaluate your mortgage application, they typically prefer to see a consistent employment history. If you’ve remained in your current job for an extended period and have a steady income, it can instill confidence in your ability to manage the financial responsibilities of owning a home. It is generally advisable not to have changed jobs within the last year. For self-employed individuals, most lenders prefer to see a track record of self-employment for over a year as a sign of stability.
- Consider your long-term plans and how they align with buying a house. Are you planning to start a family, change careers, or move to a different city in the near future? These factors can impact your decision to buy a home.
- Create a realistic budget that takes into account all your monthly expenses, including the anticipated mortgage payment. Make sure you’re comfortable with the budget and can still achieve your financial goals while owning a home.
In addition to these financial considerations, it’s essential to be aware of two critical aspects to get you ready to buy a house:
- Earnest Money: When you decide to purchase a home, you’ll typically need to provide earnest money as a sign of your commitment to buying the property. Earnest money is held in escrow and goes towards your down payment or closing costs. It’s important to understand how much earnest money is required and the conditions under which you may forfeit it.
- Option Money: Option money is a fee paid to the seller for the exclusive right to terminate the contract within a specified period (usually a few days) without forfeiting your earnest money. This option period allows you to conduct inspections and assessments to ensure the property meets your expectations. It’s a crucial part of the contract negotiation process.
Once you’ve considered these factors, feel good about your budget, and grasp the importance of earnest and option money, you’re fully prepared and ready to buy a house! The Onward Real Estate Team at Keller Williams is your partner throughout this journey, offering expert guidance to help you discover the ideal home within your criteria and budget. Get in touch with us today to kickstart your path to homeownership and turn your real estate dreams into reality.