How To Know If You’re Ready To Buy a House
Buying a house is stressful, right? How could it not be!? It’s one of the biggest purchases of your life, and it’s so hard to know where to start. Heck, that’s why we made a quiz!
Thousands of questions are running across your mind. How much money will I need? Is my credit score high enough? How do I find the right agent and lender? Will I be taken advantage of?? And to top it all off, the internet is full of information that sounds like another language if you aren’t familiar with it. Phrases like PMI, appraisal addendum, and financing contingency are enough to make a newbie’s head explode!
When your friend’s and family purchase homes, you’re impressed. They’ve accomplished a feat that may seem unattainable to you. But think about it this way: every successful homeowner started exactly where you are now!
I felt the same way when I was trying to buy my first house! I dove head first into a process I knew nothing about and didn’t have the best realtor to guide me through.
Honestly, that was a huge aha moment for me and the main motivators for me getting my real estate license and co-founding our education company, Open House. I devoted lots of my time to develop easy and comprehensive ways of teaching this information to first time buyers.
As I did more research and helped hundreds of buyers through the process, I quickly realized that buying a house doesn’t need to be stressful and you can do it with confidence and the satisfaction of knowing you made a smart investment.
Deciding if you’re ready to buy isn’t just a spur of the moment decision: there are certain factors you need to consider when determining if the time is NOW or if you need another year.
So, how do you know if you’re ready to buy a house?? I’ll show you!
When debating if now is the time for you to buy, and you need to focus on 3 things:
- Debt to income ratio
- Credit score
- Savings
Debt to Income Ratio
So first is debt to income ratio, or DTI. Lenders use your DTI to figure out how much you can feasibly afford each month when approving you for a loan. To calculate this ratio, lenders divide your monthly debt payments by your gross monthly income. Lenders are looking for a DTI of under 50% including your new mortgage payment. The lower the DTI; the less risky you are to lenders.
- Your monthly debt payments count against your debt-to-income ratio, so if these numbers are too high, you’ll want to work on paying that debt down, starting with your credit cards!
Credit Score
You can probably figure your credit score will come into play when buying a home, but do you know the score you’ll need to get approved for loans or how to raise your score?
For a conventional loan, you need a minimum credit score of 620. 750 or above is the ideal credit score to get the best rate, but you can definitely get approved or buy a house with a credit score as low as 580.
If you’re looking for advice on raising your credit score before buying a home, definitely check out this podcast episode here. My co-founder of Open House Steph was able to raise her credit score by 100 points in less than 6 months!
Savings
The 3rd part to this equation is cash money. Obviously you need money to buy a house! But how much exactly? To buy a house you will need savings for a down payment (it can be as little as 3% of the sales price) and savings for closing costs (2–4% of the sales price). But what about extra savings for after you are a homeowner?
As a cushion, no matter what, we believe $7k is the minimum amount you should have in your savings after your down payment and closing costs. This amount would be able to cover you in case you need to make a “big ticket” repair.
So — Now What?
Now, after all of this advice, are you still not sure you’re ready to buy a house? I’ll make it even easier for you: take our quiz. It will determine if you’re ready to buy based on a very specific set of questions! And if you’re not ready yet — no sweat! We will give you more resources to set you on the right path so you’ll be able to buy a house in 1 year or less, if you want to.
I am seriously so proud of you for taking this first step toward becoming a homeowner and at least doing some initial research to see if this is even right for you. We make it our mission to educate as many people as possible about the possibilities of owning real estate. Hopefully more and more of you will start to look into making your first house an Investment, and we will be there for you every step of the way.
