Your Lifestyle

Considering your lifestyle is a critical step in preparing you for your homeownership journey.

• Know Your Needs: Do you have an idea of what you need in a new house? With many people now spending so much more time at home, maybe you are in desperate need of a home office. Perhaps you have growing children or are expecting a baby, and need to expand. Or maybe you simply need a change of location for a better school district, less commute time, or reduced crime in the area. Knowing what you need will help to remove some of the emotional pieces when considering homeownership.
• Ready to Settle Down: Buying a home is a long-term investment. The longer you own your home, the more equity you will build, and the more money you’re likely to make when you sell it. Ideally, you should plan to live in a house at least five to ten years to capitalize on the equity. So, while things can change, be sure you are ready to commit and plant those roots for at least a few years.
• Have a Steady Job: While any job always comes with uncertainties, the longer you have a position or the more years as a business owner, the more likely that your job will be viewed as steady enough to back-up homeownership. Stable employment and income show lenders how much house you can afford and are important indicators for qualifying for any mortgage. So if there’s any uncertainty about your income or employment, wait until things settle down before buying a house.

• Ready for More Responsibility: Owning a home means you’ll have more control over your living space, the freedom to renovate your kitchen or put in new floors. However, as the property owner, you’re also solely responsible for its maintenance and upkeep. If you aren’t handy, you may want to familiarize yourself with some common home maintenance tasks. When issues like a leaky faucet, broken furnace, or other surprises pop up, you will either need the ability to fix the problems yourself or the resources to pay others to fix them.
• Willing to Make Sacrifices: In addition to being comfortable with your financial ability to pay a mortgage, you should also consider how a home fits into your lifestyle. Will the financial cost of a mortgage allow you to continue doing the things you’ve become accustomed to, such as eating out, going on vacations, or paying for your children’s activities? Are you willing to “live leaner” in order to meet your homeownership goal?

Financially Prepared

Once you’ve determined that your lifestyle is in alignment with your homeownership goals, being financially prepared is by far the most important factor. Being a homeowner is expensive, and not only will you have a new mortgage, but must consider the additional expenses as well: closing costs, property taxes and insurance, HOA fees, utilities, other home expenses (sewage, garbage, internet, etc.), and money for repairs and furnishings to turn the house to a livable home.

• Debt: How much debt do you have? Where you don’t have to be completely debt-free to buy a home, mortgage lenders will use your debt-to-income ratio to evaluate your creditworthiness as a borrower. This is the percentage of your monthly gross income that goes toward those monthly payments, including your mortgage, student loans, auto loans, and minimum credit card payments. The ratio does not include big expenses such as income taxes, health or car insurance. In general, lenders are looking for a ratio of 36% or less, though it is still possible to get a mortgage with a debt-to-income ratio as high as 43%.
• Credit Score: Your credit score is the number a lender uses to determine how well you handle credit. You don’t need perfect credit to buy a home, and there are many loans and first-time homebuyer programs available for buyers without perfect credit. While there’s no hard-and-fast rule, you’ll likely need a minimum credit score of 600 for approval. That being said, a higher score will help you qualify for a lower mortgage rate, saving you money in the long run. To qualify for the most favorable rate, work on improving your credit score to a 700 or higher. Being able to qualify for a better interest rate means you can enjoy a lower monthly mortgage payment, making the option to become a homeowner a more obtainable goal.
• Down Payment: You have saved for your Down Payment. Although the minimum down payment will be determined by the type of loan you receive, it can range anywhere from 3% to 10%. However, if you put down less than 20% on a Conventional Loan, you will likely have to pay for Private Mortgage Insurance (PMI), which protects your lender in case you default on your mortgage. This insurance is added to your monthly mortgage payment. The bottom line…the more you put down, the lower your monthly payment will be, and the less interest you will pay during the life of the loan. A healthy down payment will set you up for a much stronger financial position.

• Savings/Emergency Fund: You should also make sure you have savings or emergency fund accounts set up. There will always be unexpected surprises owning a home, and in life too. It makes good sense, and is important to plan for this stress with extra funds in your savings and emergency accounts. By having income set aside that is the equivalent of at least 6 months to 1 year in monthly bills, this puts you in a good position before buying a house.

If you are confident that your lifestyle and financial outlook align with your homeownership goals, then it’s time to start looking for that new home, you are ready!