Maybe you’ve thought about it and thought about it, and now you’re wondering if you really are ready for homeownership. Here are 5 good signs you’re financially ready for the home buying process.
- You’ve checked your credit score, and it’s in good shape.
It’s possible to buy a house with a FICO credit score as low as 620 (and some mortgage types will accept as low as 580), but your mortgage rate will reflect that and cost you more money over the long run. Taking the time to clean up your credit, create a history of on-time payments, and pay down debt will help raise your score and qualify you for a better rate. Even a tiny percentage difference could mean tens of thousands in savings over the term of your home loan.
- You’ve saved enough to cover a down payment and closing costs.
The amount of money you’ll need to save for a house will vary depending on several factors, but it’s a good idea to start by learning the down payment requirements for each type of mortgage. For example, Conventional Loans will typically require at least a 3% down payment, while FHA Loans require 3.5%. If you’re part of the military, a VA Loan requires no down payment.
Closing costs will also vary, but a general rule of thumb is to prepare to pay 2-5% of the home purchase price in closing costs. You’ll also want to make sure you have some money set aside for other expenses that may come up during the process, such as inspections, buying or moving furniture, etc.
- You’ve run the numbers to MAKE SURE you can afford the monthly expenses.
Affording a home is so much more than the mortgage payment. Other financial aspects of homeownership include:
– Property Taxes
– Home Owner Association (HOA) fee, if applicable
– Home expenses (sewage, garbage, internet, etc.)
– Utilities (water, electricity, etc.)
- You can afford to cover repairs or other expenses that may come up.
Once you close on your new home and the title is in your name, any emergency repairs that come up become your responsibility. Be sure you have the savings to cover those repairs, which can range anywhere from a relatively affordable broken water faucet to a much more expensive damaged roof.
- The rest of your finances are in order.
During the mortgage process, you’ll need to provide proof that your employment is secure (this is usually done in the form of pay stubs), and that you’ve done little to no job-hopping in your recent past.
In addition to your employment, the rest of your financial situation should be comfortable. This usually means you have little to no debt and are making payments on all of your bills on time. To be truly financially secure, you’ll also want to make sure you have a reasonably robust emergency savings account, retirement savings, and any necessary insurance.
Are you ready?
Even when you know you’re financially ready for homeownership, the home buying process can still be nerve-wracking. The good news is you don’t have to do it alone! The Generations Mortgage Team is happy to walk you through the home buying process and secure the right financing for your situation. If you’re interested in meeting with one of our Mortgage Specialists, you can call us at 210-230-9380, or visit our Mortgage Page on the GFCU website for more information.
Samantha Salazar is a University of Texas at Austin alum who has worked in the finance and marketing industry since 2011. She has a background as a CUNA Certified Credit Union Financial Counselor and is a Class II graduate of the Latina Leadership Institute (LLA). True to her millennial nature, Samantha loves coffee, covers her home in hanging plants, lives a frugal lifestyle, and works hard so that her dog, Olive, can have the backyard she deserves.