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How to know if you are financially ready to buy a home?

How to know if you are financially ready to buy a home

Buying a home is a significant step for first-time and experienced homebuyers alike. Can you really afford the home you imagine yourself living in?

To find out if your finances can handle owning one of the houses for sale in Houston County, GA, ask yourself these questions to gauge your readiness.

How’s your debt?

Mortgage lenders place a lot of weight on credit history and debt-to-income ratios (DTI) when evaluating mortgage applications. Focus on these two aspects to confirm if you’re ready to own a home. Finding out where you stand also gives an overview of your expenses and how they can be adjusted to prepare for the home buying process.

Before you apply for a mortgage:

  • Pay off your credit card debt on time.
  • Request a copy of your credit report.
  • Check for errors on the report and file for corrections early – a cleaner credit history results in a higher credit score.
  • Strive to improve your credit score so that lenders see you as a low-risk candidate worthy of better mortgage rates.

While most FHA-approved mortgages allow borrowers to have a DTI ratio of 43%, this is the ceiling. In most cases, lenders prefer overall DTI ratios lower than 36% – with debt making up just above a third of the borrower’s monthly income

Most lenders also want to see a front-end DTI of 28% or less, which means that the borrower’s monthly mortgage and other house-related expenses account for only around a quarter of their monthly income.

Do you have enough income and savings?

Having enough money on hand plus a steady monthly income is essential to homeownership. Lenders constantly assess the risk of buyers defaulting on a loan. If the lender sees itself at higher risk – if, for instance, you make a down payment of less than 20% of the asking price of a piece of property – they will compel you to take out a private mortgage insurance (PMI). This type of insurance protects the lender in case you default on your loan. Lenders may also saddle you with higher mortgage rates.

If you haven’t already, start saving up for the buffer needed to:

  • Sustain a mortgage
  • Make a 20% down payment

At the very least, you should have:

  • Emergency savings of between three to six months worth of living expenses
  • A retirement plan in which you regularly set aside 10% of your monthly income

Take a look at your current expenses and see where you can lower costs to accommodate new expenses. Keep in mind that monthly amortizations aren’t the only expenses that come with owning a home. Homeowners also have to budget for home insurance, repairs, utility bills, property taxes, as well as closing costs (typically 2 to 4% of the total home price).

Have you considered your lifestyle and future plans?

Yes, finances make a large part of the home buying decision. But, money isn’t the only thing potential buyers should consider. After you’ve assessed your finances (and found yourself capable of homeownership), take the time to decide what kind of home matches your needs.

Do you want lots of space or more privacy? Then a neighborhood farther away from the city or town center may be more ideal. Are you a first-time homebuyer? Then, new houses for sale in Warner Robins, GA might be worth looking into, so you can ease into the maintenance that comes with owning a home.

Aside from your immediate living needs, think about your future plans. Homeownership is best for an owner who can hold onto their home for about five years (and two at the very least). This rule of thumb lets you reap the benefits of property appreciation and also saves you from capital gains tax, which applies to homes that are sold despite being owned for less than two years.

What’s the local market like?

Knowing which factors are at play in your local market will help you determine if homeownership is the right decision for the moment. In many cases, it also tells you when to buy or sell a home and clues you in on strategies you can to better leverage your finances.

If the neighborhood or location you’re interested in happens to be a buyer’s market, the conditions are in your favor. Prices are lower because there are more homes for sale than is usual. Couple this with some of the lowest mortgage rates the country has seen in decades, and buyers with sufficient financing are in an extremely favorable environment for more affordable homeownership.

Now that you’ve gained more awareness about your financial readiness, reach out to the experts at Warner Robins Home Search to see what options you have for your next home. Our professional and highly knowledgeable agents close over 100 homes a year in Houston County, Georgia.

Call us, Warner Robins Home Search, at 478.832.0388 or send an email to jasonleerealestate1(at)gmail(dotted)com.