Figuring out whether you're ready to buy a home -- whether you're a renter or are aiming to move up or size down -- can be a daunting task. But there are signs that will indicate whether you're ready to take the buying plunge.
If you are thinking about buying, you're not alone. So are you ready to make the move? You might be if you:
Are you familiar with the buying process?
If you've not, you should attend a Free First Time Home Buyer Seminar.
Are you familiar with the market?
If you've been paying attention to how much houses are listed for in the neighborhoods you're eyeing and have a realistic view of how much a house will cost you, you're in good shape. But if you're dreaming about that big corner house with no clue about it's asking price, you may want to spend some more time educating yourself and becoming familiar with the market and how much houses are going for. See the Benefits of Working with a Buyer's Agent.
Have the money for a down payment and closing costs.
Down payments are a percentage of the value of the property, and depend on the type of mortgage you select; usually ranging from 3 to 20 percent. If your down payment is less than 20 percent, you may be required to have Private Mortgage Insurance (PMI). Learn more about Strategies for Saving for the Down Payment.
Closing costs include points, taxes, title insurance, financing costs and items that must be prepaid or escrowed and other settlement costs. You can expect to pay between from 2 to 7 percent of the property value. Generally, buyers will receive an estimate of these costs from your lender after you apply for a mortgage. So it is good to get pre-approved for a mortgage to know all the costs. Learn more about Reasons to Get Pre-Approved.
Know how much you can afford.
Your income, debt and credit history go into determining how much you can borrow. As a general rule, your debt -credit card bills, car loans, housing expenses, alimony and child support -- should not be more than about 30 to 40 percent of your gross income. Determine Your Buying Power.
Know what additional expenses will come with owning a home.
This includes homeowners insurance, utility bills, maintenance costs -- roofing, plumbing, heating and cooling.
Have your credit in good shape and make sure your credit report is accurate.
Potential lenders will view your credit history -- how much debt you've accrued, how many accounts you have open, whether your payments are made on time, etc. -- to determine whether they'll give you a loan. You should get a report from each of the three credit reporting companies: Equifax, Experian, and Trans Union.
You haven't made any recent major purchases, particularly a vehicle.
If you do, you may have a harder time getting a loan -- or it could potentially lower the amount you'll be approved for.