Buying a home is an exciting prospect. Homeownership offers freedom from renting and can allow you to start building equity. Homeownership—and mortgages—also represent big responsibilities that not everyone may be ready for. Here are a few other signs that you might be ready to buy a house.
Your credit score plays a significant role in the home buying process. Lenders will use your credit score to determine whether or not you qualify for a loan, and what interest rate you’ll be offered. A higher credit score means you might even be offered a lower interest rate, which can save you thousands of dollars over the life of your loan.
When lenders are considering whether or not to approve you for a loan, they’ll look at your income to make sure you can afford the monthly payments. If you have a steady job with a salary that allows you to easily cover monthly payments, that’s sign that you’re ready to buy a home.
In addition to the cost of a mortgage, there are also property taxes and maintenance costs to consider. When you’re evaluating your ability to buy a house be sure to factor in these additional costs so that you understand the expenses associated with homeownership.
Lenders will also look at your debt-to-income (DTI) ratio when considering your mortgage application. Your DTI is calculated by dividing your monthly debt payments by your gross monthly income. If your DTI is too high, it may be difficult to get approved for a loan, or you may have to pay a higher interest rate. So, if you don’t have any significant debts, you may be in a good position to buy a home.
Home ownership often means unexpected expenses—whether it’s a broken appliance or a leaky roof. That’s why it can be helpful to have an emergency fund saved up beforehand. This way, if something does go wrong, you have the financial flexibility take care of the issue.
One of the biggest signs that you’re ready to buy a home is that you’ve saved up enough money for a down payment. Many people aim for 20 percent of the purchase price, so if you’re looking at homes that are in the $300,000 range, that means saving $60,000 (plus a little extra for closing costs and anything else that comes up). If you can’t afford a 20 percent down payment, you may still be able to get a mortgage with a lower down payment, but the lender may require you to take out private mortgage insurance.
Couples or single people buying a home may be worried that if they pass away suddenly, a partner or inheritor may be saddled with a mortgage that they’re not prepared for. In this scenario, life insurance may help provide some security. Buyers can name their spouse or heir as the insurance beneficiary so if the unthinkable happens, their heirs can use the insurance payout to repay the mortgage. With a permanent life insurance such as whole life insurance, you can also borrow against the cash value of the policy for any reason, including home repairs.
The primary purpose of permanent life insurance is to provide a death benefit. Using permanent life insurance accumulated value to supplement retirement income will reduce the death benefit and may affect other aspects of the policy.