Buying a house can be the biggest financial investment you’ll make in your lifetime, so it can make sense to step back and decide if you are, in fact, ready to take that step.
Issues to consider typically include:
• what you have saved for a down payment
• your monthly income
• your monthly expenses
• your credit score
• the condition of the housing market
• lifestyle considerations
In the rest of this post, we’ll delve into these factors more deeply, to shed light into how to know if you are ready to buy a house. We have also created a quiz for you to take to give you more information! We encourage you to take it today.
The first four bullet points focus on your personal financial situation, and each deserves a closer look before you move forward. As far as the down payment, ideally lenders like to see 20% down (although SoFi offers flexible down payment options as low as 10%), plus you’ll need to have enough money left over for closing costs, moving costs, and any renovation costs involved.
Lenders also want to see two years of steady income, because both job continuity and consistent income are important. Then, you’ll need to see if your monthly income is high enough to afford the mortgage payment you’d be taking on; in other words, you’ll need to calculate your debt-to-income ratio.
As just one example, let’s say that 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 $800.00. You’ve got monthly expenses, then, of $2,300; when you divide that by your monthly income ($2,300/$6,000), then your debt-to-income ratio is 38.3%, which is in the range of what many lenders like to see.
To find out more specifically what a lender requires for a down payment, debt-to-income ratio, credit score and more, it can make sense to get prequalified or even pre-approved for a certain mortgage amount before you go house shopping. That way, you’ll know what you can afford.
Housing Market Conditions
When you’re looking for a house, a key factor is its location. 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.
In desirable locations, competition is fierce today, with homes often selling quickly after being put up for sale. And, as demand has increased, available housing (especially for first-time home buyers 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.
Earlier in this post, we focused on financial factors, and we’ll expand that concept to say that it’s important to make sure you have the financial resources you need for the home you want in the location you desire.
Let’s say you’re confident that you have the financial resources to purchase a home in your neighborhood of choice. But, before you move forward, here are a couple of lifestyle issues to consider:
• Are you ready to do your own 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.
• Are you 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, because it can take time to recoup closing costs and other costs you paid when purchasing the home.
• Are you ready for the responsibility associated with a long-term loan? You’ll also need to pay for repairs, renovations, general upkeep, utilities, taxes, insurance, and more.
Ready to Buy? SoFi Mortgage Loans
If you ultimately decide it’s time to buy, then we’ve got plenty of resources to share, including a post that provides 12 tips for first-time homebuyers. Plus, you can get painlessly pre-qualified for a SoFi mortgage loan, with both fixed and adjustable rate programs available.
SoFi Home Loans
Terms, conditions, and state restrictions apply. SoFi Home Loans are not available in all states. See SoFi.com/eligibility for more information.