How to Decide if You're Ready to Buy a Home: Checklist
Buying a home is a big step in your life, especially if you have never owned a home before. There are the obvious costs and considerations, such as the mortgage terms and the time and expertise a "fixer-upper" would require, but how do you decide if you're ready to buy a home? It's never an easy choice, but the following checklist will help you organize your thoughts and better weigh the pros and cons.
Your Work History
- Have you been steadily employed for the last two years?
- If you have recent gaps in your employment history, what caused them?
- Has your income fluctuated during the last two years? If so, why?
Your Credit History
Do you pay your bills on time? Do you carry large balances on your credit cards? Have you ever defaulted on a loan (including your student loans)? Have you requested copies of your credit report directly from Equifax, TransUnion, and Experian (formerly known as TRW), that collect data lenders depend on? The following are questions you should considered:
- What does your credit report say?
- You can dispute any debt on your credit report that is inaccurate.
- If you have existing loans, are your payments current?
- When will any long-term loans be paid off?
- Have you received notices from a collection agency?
- Has a court entered a lien or money judgment against you?
- Have you ever filed a bankruptcy petition?
Saving Money and Building Credit
Do you have enough money for your down payment and closing costs?
- The down payment usually is at least 5% of the price of the house.
- You can save money by investing in a financial plan that pays more than a regular savings account.
- Most employers have direct-deposit, and you can designate a set percentage of your wages to be deposited directly to your financial plan.
Mortgage lenders have statutory limits on how much money they can lend based on numerous factors, including, how much do you earn and the amount of your future mortgage payment. Lenders and banks look at:
- long-term debts, such as car loans, student loans, and credit-card debt to determine your combined monthly payment amount.
- They add your combined monthly payment amount and your monthly housing cost, and compare the total against your gross monthly income.
- These two kinds of costs taken together should not exceed 36 percent of your gross monthly income.
If your gross monthly income and your debts exceed these two guidelines, you'll need to adjust your expectations. You will need to decide whether to wait until your situation improves, or whether you should purchase a lower-priced house. You can do some research and use a mortgage calculator to determine what you can afford before you talk to a loan officer.
Getting Prequalified for a Loan
A smart buyer shops for a loan before looking for a house, and certainly before making any offers! Being prequalified for a loan means that a lender has looked at your finances and credit history and has approved a loan for a specific amount. There are advantages to being preapproved:
- You can begin your search for a home right away and focus on homes in your price range.
- You will be able to make an offer backed by a lender. A seller is more likely to accept an offer from a prequalified buyer.
Not Sure Whether You're Ready to Buy a Home? Get a Free Attorney Match
Whether still on the fence or ready to buy, don't worry. It's a tough decision. Don't go it alone; get started with a free real estate attorney match for some peace of mind.
You Don’t Have To Solve This on Your Own – Get a Lawyer’s Help
Meeting with a lawyer can help you understand your options and how to best protect your rights. Visit our attorney directory to find a lawyer near you who can help.
Contact a qualified real estate attorney to help guide you through the home buying process.