Buying a house can be the single largest financial move you’ll ever make. What’s more, once purchased, your home is likely to be your biggest asset and possibly a path to building wealth.
So this rite of passage probably isn’t something to be done without a lot of preparation. For instance, you usually have to focus on such factors as:
• Saving for a down payment
• Optimizing your credit score
• Understanding what your monthly expenses will be
• Considering the dynamics of the real-estate market
• Researching where you want to live
• Making sure you’re ready for the responsibilities of homeownership.
You’ll learn more about these factors in a minute, but first, take this quiz to get a read on just how ready you are to dive into house-buying. While it won’t answer the question, “Am I ready to buy a house?” definitively, it can help you gauge where you stand.
Then, read on to learn more about how to make snagging your dream house become a reality.
Now that you’ve taken the quiz, here’s more intel on how to get ready to buy a house.
Recommended: First-Time Home Buyer Guide
Home ownership can be quite expensive, especially recently. As you may know, housing prices soared during the pandemic, rising over 40% in some areas. In an effort to stem that, as well as other aspects of inflation, the Fed has been raising interest rates, so it’s become more expensive to borrow money, too, further squeezing potential homebuyers.
But don’t let that discourage you: Homeownership is still a goal you can realize, especially if you prepare for the following:
• Down payment: Ideally, lenders like to see a 20% down payment (although SoFi offers flexible down payment options). Plus, you’ll need to have enough money left over for closing costs, moving costs, and any renovation costs involved.
• Private mortgage insurance: If you are putting down less than 20% on your home purchase, you may have to pay private mortgage insurance (PMI). This helps protect your lender as you may look like a less well-qualified home purchaser. This cost is typically charged along with your monthly interest payment by the lender. It’s wise to include this amount in your calculations, if necessary, as you move toward buying a house.
• Income: Knowing the answer to “When can I buy a house?” doesn’t depend on a particular salary. However, mortgage lenders do like to see two years of steady income, because both job continuity and consistent income are important.
• Debt-to-income (DTI) ratio: You’ll need to see if your monthly income allows you to afford the mortgage payment you’d be taking on. This typically involves calculating your debt-to-income ratio or DTI.
Here’s an example: Say you make $6,000 a month, before taxes. You’re paying $1,500 a month in rent and, when you add in car payments, credit card debt, and student loan payments, that equals another $700. You’ve got monthly expenses, then, of $2,200; when you divide that by your monthly income ($2,200/$6,000), then your debt-to-income ratio is 36.7%, which is in the range of what many lenders like to see.
• Credit score: It’s helpful to know your credit score before you go home shopping and, if it’s under 700 (meaning either at the low end of a good score or a fair credit score), work to build it. That can open you up to more mortgage offers and lower interest rates.
• Mortgage options: Speaking of mortgages, connecting with lenders or mortgage brokers can help you gain a better understanding of how much house you can afford, what kinds of mortgages are available, and whether you can get prequalified or even preapproved before you shop in earnest. This can give you an edge in or possibly even be necessary in today’s tight housing market.
• Homeownership costs: In addition to the mortgage payment and any PMI, you’ll need to budget for property taxes, heating costs, and other regular expenses. Make sure to factor those in as you develop a budget for your life as a homeowner.
Recommended: How to Qualify for a Mortgage
Housing Market Conditions
When determining if you’re ready to buy a house, also consider housing market conditions. Among the key factors:
• Location: Of course, you’ll want your home to be in a desirable location, however you define “desirable.” It could mean being in the heart of a busy city — or in a peaceful place along a river. If you have or plan to have a family, quality schools are likely important, and so forth.
It’s likely going to make your house hunt more manageable and productive if you narrow down where you want to live to a few towns or neighborhoods. Otherwise, you might spend a lot of time and effort driving all over and not being able to whittle down the choices.
• Real-estate dynamics: In desirable locations, competition is fierce today, with homes often selling quickly after being put up for sale and bidding wars occurring. And, as demand has increased, available housing (especially for first-time homebuyers looking to purchase in affordable price ranges) has therefore decreased.
So, you’ll have to be prepared to compete in the current housing market conditions, which means having your financial situation in order so you can make a timely offer on a house of choice.
Check out local real estate
market trends to help with
your home-buying journey.
Let’s say you’re confident that you have the financial resources to purchase a home in your neighborhood of choice. Before you move forward, here are a couple of lifestyle issues to consider:
• Home maintenance: If you’re used to renting, your landlord has played a key role in home repairs and so forth. If you buy a home, you would now be your own landlord. That means dealing with broken boilers, leaky roofs, yard maintenance, and more. Be sure you budget for that financially and are also prepared for the responsibility.
• Community: Think about whether you are ready to settle down in a particular community for at least a few years. If not, you may not break even when you sell the house you bought. Here’s why: It can take time to recoup closing costs and other expenses you covered when purchasing the home.
Homeownership can be the foundation of the American dream for many people. It’s also a potential avenue to build wealth. But when you should buy a house depends on a variety of factors. Before you dive in, do your research, save for your down payment, and optimize your finances so you are ready to handle the responsibility.
When you decide it’s time to buy, SoFi can help. Compare mortgage options from SoFi: We offer competitive rates and features, such as qualifying first-time homebuyers putting down as little as 3%.
Terms and conditions apply. Not all products are offered in all states. See SoFi.com/eligibility for more information.
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Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.