So you're ready to ditch your landlord and the noisy neighbors who live above you.
But instead of seeking out another place to rent, have you considered (like, seriously considered) buying?
For many people, purchasing a home is one of those bucket-list items—something you'll accomplish down the road—so the idea of starting the process here and now may seem out of the question. But there's a chance you're actually in a better position than you think.
Check out the following explanations, which will help you ponder your financial snapshot. You never know: You may be calling yourself a homeowner much earlier than you ever thought possible.
1. Your salary qualifies you for a mortgage
When determining if you can buy a house, your salary is one of the first figures you should take into account. But don't trick yourself into thinking that you can't afford a house simply because you don't make a six-figure salary! Use this quick equation from Lauren Anastasio, a certified financial planner with SoFi in San Francisco, to determine a realistic mortgage amount:
Multiply your annual income by 2.5, and then add your down payment amount to that figure. Your total amount is the max mortgage you should shoot for.
2. You can afford to put down at least 3%
Most first-time home buyers are intimidated by the idea of having to put down a large chunk of change. However, the traditional 20% down isn't your only option.
Other paths to mortgages include conventional loans, which require a minimum of 3% down, and Federal Housing Administration (FHA) loans, which can go as low as 3.5% down. And if you're a veteran, you can qualify for a VA loan with no down payment. So take a look at your savings account and browse the home listings in your area. You might just find that your years of saving have actually put you in a position to qualify for a mortgage.
3. You have a little bit of debt
Another common misconception among first-time home buyers is that future homeowners must be debt-free in order to get approved for a mortgage loan. But don't worry—you can still buy a home even if you're still paying off your student loans.
"Lenders like to see a little debt. By paying down a car loan on time, you're showing the bank that you are a responsible borrower," says Andrew Helling, editor at REthority.com.
4. Your credit score is over 580
Another number lenders look at to determine your creditworthiness is your credit score. A perfect credit score is 850, and any score over 740 is considered to be great, but you don't need to fall in this range to be approved for a loan.
If your credit score falls below 700, lenders will start to question whether you’re a risky investment as a potential borrower, and getting a mortgage will be more challenging. But, if your score is above 580, there's still hope in the form of an FHA loan or another type of conventional loan. The FHA requires a minimum 580 credit score (and other requirements) to qualify. Having a poor credit score means you'll probably be required to pay PMI, but the benefits of owning a home could far outweigh the negatives.
5. A starter home (if not a forever home) is within reach
Some first-time home buyers make the false assumption that the first home they invest in needs to be their forever home. But don't let that idea deter you from purchasing a modest starter home, even if you soon outgrow your new digs.
What you shouldn't do is buy a house that you can't yet fill, hoping that your lifestyle later catches up. That can be a recipe for disaster.
For more info, go to Realtor.com
If you need help determining if you’re ready to buy a home, contact us. We would love to help!
