Contributed by Abigail
I believe each of us has a dream home. If able, we make it a point to secure our future in a place we call our own. This big decision could either come earlier or later in life – whenever it is, it’ll surely come. If you’re reading this, then you’re pretty much torn between staying in that rented space and taking the big step towards home ownership.
Decisions as huge as this one requires a thorough discussion with your parents or partner, taking a closer look at your financial capacities and options. But before you go running to your nearest real estate broker or finance expert, check out these signs if they resonate with your current state. That way, you’ll be extra confident to walk through their doors.
You Got a Good Credit Score
According to The Balance, one should be knowledgeable of what goes in his credit score. There are five key pieces of information used to calculate your score: they’re your payment history, level of debt, credit age, mix of credit and recent credit.
As for the breakdown of these main components, your payment history has the biggest consideration when it comes to loans. This is 35% of your credit score because lenders would like to see how well you pay your bills. Delinquencies in payments can hurt your record to a certain degree.
How can you maintain a good rating? Well, it’s as simple as paying your dues on time. They’re your bills, credit cards, and other loans. Your credit card balances should also be kept low, ideally within 30% of your credit card limit. Debts can also make or break your credit score. Having a lot of loans won’t only be a red flag but also a burden of paying all your monthly dues.
This only boils down to proper budgeting, mindful loaning and sheer diligence in paying on time. Lenders are pretty much concerned about how you can pay and who you are as a borrower. If they see that you don’t have overdue fees, additional interests and numerous loans, then you’re an excellent mortgage candidate.
You Got Ample Savings
A good money handler can surely save a lot of money. If you’re that type, then you’re just a few more steps to getting your dream house.
If you’ve been looking to buy a house in a few years or so, you should be able to secure a down payment, ranging from 3% to 20%. The higher your deposit, the lower your monthly payment. As for lower than 20%, lenders would require you to pay mortgage insurance premiums.
20 percent of the selling price is definitely a huge amount and can be quite unachievable for many. The US government has provided an affordable alternative in the name of FHA loan (Federal Housing Administration). This enables a lot of people to own their dream home at 3.5% down payment, even with a 580 credit score. However, the deposit is below 20%, so you’ll be required to pay the insurance premiums.
Make sure all your savings won’t go to your down payment. Having an emergency fund secures you even more, as you’ll have money to use in case of unprecedented events like accident, health concerns, job loss or even mortgage payment lapses.
You Make Enough Money
This is common-sense but this is for the sake of emphasis and to give you a picture of how much you should be earning to get by paying a mortgage.
It doesn’t really mean you have you make a lot, just as long as you have enough income for the down payment, emergency fund, mortgage repayment and a little extra for daily expenses. But of course, the more money you earn is always better.
If you think you can provide for your personal and family’s needs while paying the mortgage, then you’re in good shape.
You Got No Other Big Expenses in the Next Few Years
Although no one can really tell the future, planning can surely determine how you’ll be living and spending. Say for instance, if you’re looking into having a baby or buying a new car, then you might want to reconsider.
If you’re a median-wage earner, taking one big loan at a time is wise. Don’t overwhelm yourself with huge responsibilities as much as possible. If the car can wait for another year or two, just enough for you to save enough up funds, then postponing it might be your best option.
Starting a family right after a house purchase can tighten your budget even more. However, if you and your partner have a baby savings, then well and good. If not, then consider which one is more important and can’t be delayed.
You See Yourself Living in it For At Least 5 Years
The length of your stay in the house matters so much that experts even recommend you shouldn’t buy a house if moving out in less than five years is inevitable. The rationale for the length of stay is to break even the purchased price.
The length of average is five years, but it can be longer or shorter, depending on the state you’re planning to live in. In a CNBC article, SmartAsset listed down different key cities in the US and the number of years home-buyers can break even.
If you’re thinking New York, it’d take you 18.3 years to break even; followed by Seattle (14.9 years) and San Francisco (14.6 years). Philadelphia has the shortest break-even period of only 2.9 years.
In case you just realized that you have other pursuits in four years or less, renting sounds a lot more convenient by now.
You Got the Housing Prices in Your Favor
Even if you have a hefty sum in your bank account but the housing prices are off the roof, then might as well wait until they’re within your means.
The real estate market doesn’t always follow a linear movement, as it is dependent on the demands at a given period of time. When you feel like you’re all set to make your first home purchase, then you can jump right in when prices begin to look attractive.
At a certain age, we get pressured to start a family and buy a house, but don’t let that get into your system. Instead, think about how ready you are for the responsibilities – emotionally, psychologically and financially.
The list of signs can go on but I believe these are the most common. It could also be that you’re tired of renting and the many restrictions it entails. Perhaps you want more value for your money and you start to feel like your money is going nowhere paying that monthly rent. If this is you, then you might want to set an appointment with that good ‘ol neighborhood agent sooner or later.
Abigail Sabijon is the managing editor of Scoopfed.com. Before stepping into the world of blogging, she was a university instructor and language teacher. She’s also been a supervisor and coach. In her spare time, she writes content for MyFriendFernando.