How to Really Know if You're Ready to Buy a Home

September 27, 2017 · 4 minute read

How to Really Know if You're Ready to Buy a Home

You remember how psyched you were when you got to sign the lease for your current apartment. Especially in a huge city where finding a place that meets your specifications can be like searching for the holy grail, once you find that perfect spot, you hold on tight.

That makes sense. But even if you’re happy paying rent for your place now and have been for the last several years, you might have moved up in your career since then, or you’re thinking about having a kid and need a place that’s nearer to school districts than bars. Plus, putting that rent money toward owning a place would be pretty sweet.

In that goal, you’re not alone. Millennials continue to be the largest group of homebuyers, representing a 34% share for the fourth consecutive year. It’s an exciting time, for sure, but a major financial decision like buying a home can be daunting—or even terrifying, especially when you have student loans to worry about.

Since you don’t want to be hasty or over-buy and hinder your efforts to reach financial wellness, here are four ways to really know if you’re ready to take the leap to homeownership.

1. You Are Sold on the Right Reasons to Buy a Home

If you’re not ready to buy, real estate agents can tell. According to Leah Christian, a Georgia-based real estate agent, it’s as simple as the way you talk about the home.

“If you gush about decorating and buying all new furniture, it’s a warning sign you may not actually be ready,” she says. “When you talk about long-term commitment, I know you are ready.”

Positive conversation markers also include awareness about making such a large financial investment. Christian says she feels most comfortable working with buyers who have specifically saved to buy a home, and who have been pre-approved for a mortgage.

2. You’re Bringing in the Bucks and Paying Down Your Debt

Not surprisingly, mortgage lenders pay close attention to job continuity and consistent income. “Lenders will want to see two years of steady income via tax returns,” says Melanie Birchfield, an Atlanta real estate agent.

Another biggie is your debt-to-income ratio, which will give lenders insight into whether you can truly afford mortgage payments. To determine your ratio, simply divide your monthly debt payments by your gross monthly income.

For example, if your gross monthly income is $5,000, and you pay $1,300 a month for rent, and $700 a month for your credit card debt, student loan payments, and a car loan, your debt-to-income ratio is 40% ($2,000/$5,000=40%). And that’s the exact ratio lenders typically want to see.

If you’re at that threshold, but haven’t saved enough for a huge down payment, don’t worry. Some lenders are prepared to help—SoFi, for example, offers flexible down payment options starting at 10%, with no borrower-paid mortgage insurance required.

Remember, there’s a lot of competition among lenders, so shop around to choose the one that offers terms to suits your needs.

3. You’re Ready to be Your Own Landlord

Think about how handy you are before you decide what to buy, suggests Cheryl Gosa, an associate real estate broker in Atlanta. If something breaks, it’s all on you. “There is no landlord to come fix it for you,” she notes.

A condo can be a good choice if you travel a lot or if you don’t want the responsibility of maintaining a yard. “It’s a little bit less responsibility for homebuyers because they don’t have to do the exterior maintenance or the lawn maintenance,” Christian says.

But you’ll still need to be prepared to make small repairs yourself, hire a pro, and replace big-ticket items, such as major appliances or a new roof, now and then. So make sure there’s enough money in your reserve fund to cover the routine stuff and the surprises.

A good rule of thumb is to set aside about 1% of the home’s value each year. Some years, you might not need to pay that much. But, if you live in your home long enough, you’ll shell out for hefty repairs in other years.Once you buy your home you can use SoFi’s Home Improvement Cost Calculator to get an idea of how much your renovation projects will cost.

4. You Know Location is Everything

The Urban Land Institute’s Gen Y and Housing report, published in 2015 and based on a survey of millennials in the housing market, found that 63% live in city neighborhoods beyond the downtown limits or in the suburbs. According to Gosa, home location—whether it’s a big city or on the outskirts—could impact your budget and overall enjoyment as a homeowner.

If you’re serious about buying your first home, you’ve already taken time to scope out neighborhoods and to understand how to choose a location best fits your lifestyle. You know that the overall feel of a neighborhood, the quality of life it offers, and its proximity to your job matters—a lot.

Preparing to Take the Next Big Step

If you’re definitely ready for homeownership, you’ll need to get your financial ducks in row. Here are a few tips to get you started:

Get Out of the Student Loan Debt Shadow

Don’t fret if your student loans aren’t paid off yet. “They’re installment loans, just like your car payment, so they actually help build credit,” says Birchfield. Look into refinancing your student loans, which can lower your monthly payments, decrease the loan term, and allow you to save faster for a home down payment.

Hit the Homebuyer Books

Download The SoFi Guide to First Time Home Buying to learn the essential steps to take, the types of mortgages available, and common real estate terms.

Don’t Ignore Your Credit Blemishes

Your credit score will help a lender determine if you qualify for the loan; if it’s high enough, you could snag a lower interest rate on your mortgage. Follow a step-by-step plan for paying down debt so you can work toward boosting your credit rating. Buying a home is huge personal accomplishment and major financial milestone.

Talk to a SoFi mortgage team member to discover convenient loan options to help you continue on the path to homeownership.

The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
SoFi doesn’t provide tax or legal advice. Individual circumstances are unique. Consult with a qualified tax advisor or attorney.
SoFi Mortgages not available in all states. Products and terms may vary from those advertised on this site. See for details.


TLS 1.2 Encrypted
Equal Housing Lender