3 Signs You Might Be Ready to Buy a Home
3 Signs You Might Be Ready to Buy a Home
You’ve probably heard that there are some hefty requirements to buying a home. People will say you need a 20 percent down payment, you need a high credit score and the expenses are high. But you don’t have to be fabulously wealthy to buy a house. Here are three signs you might be ready for home ownership sooner than you think!
- You’re Ready to Settle Down (for Now)
Buying a home generally means planting roots for five to seven years. If you’re planning to live abroad soon or aren’t sure if this is the right community for you, you may need to spend more time as a renter.
On the other hand, if you love the area and you have no desire to leave any time soon, a house can be a great investment. Instead of having to deal with rising rent or difficult property managers, you can have a steady mortgage payment and choose reliable professionals to take care of repairs. Further, you’ll have a chance to build equity, setting you up for a more prosperous future.
- You Have a Steady Income and Savings
The prospect of saving for a 20 percent down payment can feel overwhelming. But did you know you can responsibly buy a house with just a 3 percent down payment?
For conventional loans, this is possible through private mortgage insurance (PMI). PMI insures the lender until you’ve paid off 20 percent of the house. If you stop making payments on the house, PMI will cover the lender’s losses. It requires a small monthly payment, but once you’ve paid off 20 percent of the house, these PMI payments go away.
FHA loans operate in a similar but unique manner. Your down payment can be as low as 3.5 percent, but instead of paying PMI, you’ll pay an up front mortgage insurance premium.
Finally, a USDA loan requires no down payment at all, as long as you meet certain eligibility requirements.
In addition to loan requirements, you should also know that most states have down payment assistance programs, which may also cover a portion of closing costs. Check out this state-by-state list of down payment assistance programs, and talk with a local lender for more information about your state’s options. In some cases, you can buy a home for as low as $2,500
All of this means that buying a home is likely more affordable than you think. If you have a steady job with enough income to put away for savings, you could be well on your way.
Use a mortgage calculator to estimate how much house you can afford while still having money for savings and repairs. Then, figure out how much you would need to save each month for a down payment by looking at how much you have saved now. Subtract that number from your total needed amount. Then divide that number by the number of months left to save up.
- You Have a Credit Score of at Least 620
620 is the minimum credit score required to buy a house. If you don’t have a credit score of 620 or higher, a few simple steps can help boost it over a few months. First, you need to know that your credit score is impacted by a variety of factors:
- Payments made on time (35%)
- Low balances and usage (30%)
- Account ages (15%)
- Diversity of credit cards and loan types (10%)
- Credit checks (10%)
Because on-time payments and low balances are such heavily weighted factors, this is where you should put the most energy. Start focusing on making payments on time and keeping your credit card usage below 30 percent of your limit. One way to keep ahead is to pay your credit card bill every two weeks, rather than once a month.
Next, look at the age of your accounts. If your accounts are all newer, programs like Experian Boost or UltraFICO can use your banking history to help boost your score. If you’ve been renting, you can use programs such as Rental Kharma or RentTrack to report your on-time rent payments to credit bureaus. In the future, don’t close credit card accounts after you’ve paid them off. Make sure to keep your oldest credit card open to show you have a long history of credit.
Diversity of loans plays the smallest role in your credit, but it’s still important. Student loans, mortgages, auto loans and credit cards can all help boost your score. If you haven’t taken out any debt, open a credit card, and treat it like a debit card: Only spend what you know you have, and pay it off on time, every month.
If you’re unsure which of these factors are most important for you, consult with a local loan officer to check your credit and see what’s affecting it the most.
Ready to learn more secrets to buying a house? Check out our Homebuyer Education course to learn every step of the homebuying process!