As of September 2022, the average consumer debt was over $96,000. But what if you could break free from the debt cycle and finally own your own home? Here are seven signs that you’re financially prepared to buy a house and ready to take the plunge into homeownership.
Sign 1: You Have a Steady Income
A steady income makes a difference. It doesn’t matter if you’re employed full-time or part-time or have a side hustle. You must have a dependable source of income to qualify for a mortgage. Lenders will require proof of your income, so be prepared to provide pay stubs, tax returns, and bank statements.
Sign 2: You Have a Down Payment Saved
Ideally, you’ll have saved 20% of your total house cost as a down payment before you begin house hunting. There are many reasons for this, but one of the top reasons is that it will help you avoid paying private mortgage insurance (PMI) — which protects your lender’s investment in case you later default on your home loan. However, even if you don’t have 20% saved, having something set aside for a down payment is better than nothing. To learn more about down payment assistant programs, click here and see the Empowered DPA program.
Sign 3: Your Debt-to-Income Ratio is Low
Your debt-to-income ratio (DTI) is a crucial factor that lenders consider before approving a mortgage. This ratio compares your monthly debts to your monthly income, expressed as a percentage. Most lenders prefer you have a DTI of 43% or lower, including your monthly mortgage payment amount. Do you know what your DTI is? You can use a handy online calculator to get an idea.
Sign 4: You Already Stick to a Comfortable Monthly Budget
Your monthly expenses, such as housing, food, transportation, and entertainment, are the necessary costs you must pay every month.
Additional costs might include credit card debt, student loans, and medical bills. Make sure you know you’re regular and other monthly expenses before you start house hunting.
Sign 5: You Have an Emergency Savings Account
Although this isn’t necessary to buy a house or get a mortgage, it provides a comfortable safety net in case something goes wrong. Life happens. Things break down. Unexpected expenses come up when you least expect them, such as a car repair, a job loss, or medical bills.
It’s best to save enough money to cover 3-6 months of living expenses. Now is an excellent time to start if you don’t have an emergency savings account.
Sign 6: You’ve Outgrown Your Current Living Space
Do you feel like your current living situation is cramped? If you’re ready to move out of an apartment, it might be time for an upgrade. On the other hand, maybe you need more space for a growing family, or you want to reduce your commute. Whatever the reason, it might be time to start house hunting if you find yourself outgrowing your current home.
Sign 7: You’re Ready for the Responsibility
Owning a home comes with many responsibilities. Not only do you have a new mortgage payment, but you also have regular maintenance and repairs. From fixing a leaky faucet to mowing the lawn, there are many tasks you’ll need to be responsible for to maintain your home.
The Final Word
If you’ve answered yes to most of the above signs, you might be financially ready to buy a house. Take your time, and don’t rush into anything. A home is a big purchase. Prepare for the responsibility before taking the plunge. When you feel confident in your decision, go ahead and start house hunting. At EPM, we’re focused on empowering homeownership, click here to pre-qualify.