So you’re on the fence about buying your first home. We don’t blame you. A house is likely to be the biggest purchase you’ll make during your lifetime. It’s smart to be absolutely certain that you’re ready before jumping in feet first. The following five steps will help you reflect on whether or not you’re really prepared to become a homeowner.
Check your debt-to-income ratio.
A debt-to-income ratio, or DTI, represents all your monthly debt payments divided by your gross monthly income. These debts can be anything from housing costs to credit card, student loan, or child support payments.
Example: If you pay $1200 a month for your mortgage, $300 for your car loan, $200 for your student loan, and $300 for other debts, your monthly debt payments total $2,000. Let’s say your gross monthly income is $5,000. That makes your debt-to-income ratio 40% ($2000 ÷ $5000 = .4).
According to the Consumer Financial Protection Bureau, “Evidence from studies of mortgage loans suggest that borrowers with a higher debt-to-income ratio are more likely to run into trouble making monthly payments.” This number is very important to banks and mortgage brokers. In most cases, they look for your DTI to be 43% or less.
Check your credit.
No, you’re not going to lower your credit score by checking it. Every consumer is entitled to one free credit report each year, which can be found at AnnualCreditReport.com. It’s good to know your overall credit score, but you should also check to make sure all of the information in the report is correct. Check for things like identity errors, incorrect account statuses, and balance errors. You can dispute any inaccurate or incomplete information without penalty. If your credit isn’t so great, now might not be the time for you to buy a home; however, most loan officers can help you with a plan to get it back on track so you can buy in the near future.
Learn the costs of buying a home.
A homebuying budget isn’t just about the total price of a house. On top of the sale price of the house, there’s the down payment, insurance, taxes, and other various closing costs. A good loan officer will sit down with you and work all of this into what you can afford each month to find a good budget for your home search.
Learn the costs of owning a home.
Maintenance can be a double-edged sword whether you rent or buy. On one hand, if you rent, you don’t have to worry about most maintenance work; but on the other hand, you are at the mercy of your landlord as far as getting things fixed. The great thing about being a homeowner is that you don’t have to wait on someone else to fix something. But you do have to pay for and take care of your home yourself. Before you buy, make sure you understand the costs of routine maintenance and the occasional costs of things like plumbing issues or broken appliances.
Look to the future.
What are your plans? If you know you might move in the next year or two, it’s probably not the best time to buy. In most cases, two years isn’t that long to build enough equity to make it worth your while. However, if you want to turn your home into an income property after you move out, it could be well worth the time and effort.
If you’re still nervous about buying a home after considering the above items, call our office and speak with a Hometown Lenders Rateshaker. We can walk you through the process and help you make a pressure-free decision about whether it’s the right time for you to become a homeowner.
Call to start your dream of becoming a homeowner – 334.794.2661.