Buying a home is probably the biggest financial commitment you'll ever make. How do you know if it's the right time to become a homeowner? If it's time to make a move and you're looking at condo renting versus owning a home, maybe leaning toward the latter but want to be sure you're making the best possible decision, here's how to know if you're ready to buy.
You Can Afford the Mortgage Payment and Additional Costs
Of course, the first consideration is affordability. Can you comfortably afford the mortgage payment for a home in the area you'd like to live in? The average monthly mortgage payment in the U.S. is $1,100 according to the U.S. Census Bureau - of course, that figure could be much much higher, or a bit lower depending on the location. In addition to the monthly payment, you'll have to have enough money to cover maintenance, repairs, homeowners' insurance, and utility bills.
You Have a Steady Income
How long have you been employed? If you've been working at the same company for at least two years, lenders are more likely to see you as financially stable, which means you'll have better odds of getting approved for a home loan.
You Have Enough Savings For A Down Payment, Closing Costs and Other Fees
When you rent, you just have to worry about coming up with the monthly rent, perhaps the last month's rent, and a deposit. Buying a home means you'll need to have enough saved for a down payment, which generally can be anywhere from 5 to 20 percent. On top of that, you'll have to pay closing costs which are third-party and lender fees paid at closing. For example, when buying a $300,000 home, those costs can range from $6,000 to $15,000.
You've Saved for a Rainy Day
In addition to all the costs involved in buying a home, you should have at least three months' of living expenses saved should an emergency occur - otherwise, if the unexpected happens, you could lose it to foreclosure.
You're Ready to Settle Down
If there's a chance that you'll have to move in the near future, this probably isn't the best time to buy. You'll want to be ready to put down roots as you won't be able to move on a whim, whether it's for a better job or a significant other. Understand that you'll need to stay in the house you buy for at least five years to recoup those high initial expenses - be sure you not only like the home, but the neighborhood as well.
You Have a Good Credit Score
The higher your credit score the better. If your score is below 640, or even below 700, you may want to hold off and work on improving it first. A score of 720 or above is excellent - anything less will mean a higher interest rate and higher monthly payment. Part of that score comes from having minimal debt which is also a must when it comes to buying a home. If you're saddled with debt, you're unlikely to get approved for a mortgage.
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