Becoming a first time home buyer and walking in the doors of your very own home has always been the American dream. It confirms inside yourself that you’ve reached a level of success in your life. You finally have the keys to open the door to your very first home!
But how do you know if you’re really ready to take the big step to become a first time home buyer? It’s pretty simple to tell if a person is ready to buy a home – or not ready for that matter.
Several years back during the housing crisis, many homeowners lost their homes to foreclosure. In the wake of that horrible season, we learned some valuable lessons. One of which was many of those who did lose their homes, simply weren’t ready to be homeowners in the first place. Sad but true.
Let’s learn from those mistakes and decide today to make better choices. And part of making better choices is self-evaluation. In order to get where you want to go; you need to first know where you are.
If you’re looking at a road map or even getting directions from your phone; you need to have a starting location or else you can’t possibly know which way to go.
The following points will help you identify if you’re ready to take the exciting plunge into homeownership.
#1: You have steady income and employment
In order to be ready for your monthly mortgage payments, taxes, insurance, and other expenses; you must have steady and reliable income. A lender will not have confidence in your ability to pay back their loan if you’re not able to show you’re responsible to get and keep a job for a significant length of time.
In addition to having a steady income, you want to be sure your income is high enough to comfortably pay the mortgage, taxes, and insurance on the house price you want to purchase.We recommend that your housing expenses don’t exceed 35% of your income at most.
#2 You have a low debt-to-income ratio
Decreasing your overall debt is a key factor in getting approved for a mortgage. That’s because if your debt is too high your debt-to-income ratio will be too high. Your debt-to-income ratio or DTI is one of the main factors lenders will use to approve you for a mortgage.
Your DTI is important because it tells lenders how much debt you have in comparison to your income. This gives lenders insight into the possible danger of a borrower having future financial difficulties.
The ideal DTI for mortgage lenders is no more than 36%. Anything higher can be seen as a red flag.
#3: You have an established and favorable credit record
Gone are the days of the low document home loans that don’t require extensive proof of income and credit documents. You must show that you’re a reliable consumer who pays their bills every month and on time. If your credit is or has been an issue for you; it’s not too late to save it.
You need to start by pulling your credit report from all three bureaus. You can order one free tri-bureau report a year through annualcreditreport.com. Once you have your credit report in hand, you can see a true picture of not only your scores but the actual credit items on your report. You can begin making a plan to dispute any false or duplicate charges and pay off those legitimate ones. It’s never too late to bring your credit back to life. Little by little, it will make a tremendous difference.
#4: You have at least 3 months of income saved
Savings is essential for keeping a successful home. Dave Ramsey with Financial Peace University calls savings Murphy Repellent. When you have money ready for the unexpected; it seems like the unexpected rarely comes. Not only that but when trouble or annoying issues do show up; you can take a loan from your own savings instead of a bank. Getting loans from the Bank of You is great because you always get approved and all loans are interest-free! Just be sure to act with integrity by paying yourself back just like you would with a bank.
In addition to your savings, having money saved for closing costs and down payment is important. The typical down payment for a non-conventional loan is 5% but can be as low as 3%. For example: for a $150,000 purchase price, you’ll need to bring $4,500 (3%) to closing for your down payment.
Closings costs typically come to about 2-5% of the purchase price. For example: for a $150,000 purchase price, you’ll need to bring $7,500 (5%) to closing for your closing costs.
That’s a LOT of savings! But there are programs available to those who qualify for thousands in free closing costs and down payment assistance. We specialize in these programs, so if you’d like more information on how to get qualified, click here.
#5: You live a budgeted life
You don’t need to live off an extremely restrictive budget, but you must have a clear understanding of where your money is going each and every month and are sure you always have enough in store. Having a plan for your money (a budget) means all your money has a place. It’s just like in your home. If everything has a place and it all goes to its place on a fairly regular basis; your home will flow and be more organized – instead of over run by clutter. Budgeting keeps the clutter out of your finances and keeps things flowing.
Are you confident in your readiness to become a homeowner? Do you see some areas you need to work on?
You don’t need to figure it all out on your own. Buying a new home can feel confusing and overwhelming… if you don’t have the right information and help. Let us help you through the process – hassle-free.
Click Here to contact us today! We’re dedicated to helping you get qualified and make your home ownership goal a reality.