Buying a home is always the dream of many people. It generally gives one a sense of satisfaction to know that they no longer have to pay rent every month. That’s probably what you have also been dreaming of for many years.
But how do you know if you are ready to purchase a home? You need to consider several factors to ensure that you are prepared financially.
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1. You have job security.
If you have a stable job, you are in a good position to purchase a home. This is because mortgage loan approvals are pegged on the stability or security of your job. Is your current job secure to an extent that you can confidently start a home purchase process? Being sacked from your job is bad but being out of work with a mortgage is a disaster. You will end up losing both the house and all the initial installments.
2. You have a good credit score.
It is a fact that people who have the highest credit scores normally get the lowest mortgage interest rates. Having a high credit score is an indication that you are a financially responsible person. For instance, accessing an FHA loan requires that you have a minimum score of 620, but you can get even a lower interest rate if your score is as high as 700.
3. You have a low amount of debt.
If you are the kind of person with debts all around the month, then you should not be in a hurry to buy your first house. Lenders normally look at your monthly-debt-income ratio (DTO) when determining your ability to repay. They do so in two ways: front-end DTI (housing debts and expenses) as well as back-end DTI that comprises all debts such as credit cards, car payments, and other loans. Having a low debt is a good sign that you are ready to buy your first house.
4. You are committed to a particular area.
Before you start thinking of buying your first home, it is important to have a place in mind that you plan to stay for at least five years. According to most realtors, it is not advisable to buy a home if your current situation is still fluid. Purchasing a home is a long process and you need quality time to complete it.
5. You have plenty of savings.
Although a mortgage is one of the best ways to own a home, you will need a down payment to get started. Most lenders will ask you to deposit at least 20 percent of the total amount. This means that you will need to raise a substantial amount to deposit as a down payment.
6. You are living below or within your means.
If you are living within or below your means, it means that you know have mastered the art of budgeting. You can easily identify and purchase a home without straining your finances.
7. You have a good cash flow.
You need a good cash flow to comfortably pay your mortgage installments. If your job or business gives you a good flow of cash, then you can consider buying your first home.