The majority of Americans own homes; but there are still millions and millions of Americans who, despite wanting to own a home, are not able to achieve such an expensive feat. But what if you are able to buy a home and you just don’t know it?
What are the indicators, both financially and otherwise, that you’re in the right position to own a home, perhaps after years of dreaming about it? GOBankingRates spoke with real estate experts to learn about the 10 key signs you’re ready to buy your first home.
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You Have a Good Credit Score
Prospective lenders are going to focus on your credit score. It needs to be good or better than good.
“A credit score of 620 or higher opens up better loan options, while a score above 700 can qualify you for some of the most favorable interest rates,” said Brett Johnson, owner of New Era Home Buyers, real estate investor and licensed Colorado real estate agent. “Higher credit scores indicate financial responsibility and often lead to lower monthly mortgage payments.”
Your Finances Are in Order — and Your Debt Is Under Control
The first key sign you’re ready to buy a home is two-pronged: your finances are in order and secure, and your debt is well-managed or, ideally, nonexistent.
“One of the most important factors when buying a home is financial stability,” said Alexandra Gupta, an associate real estate broker with The Corcoran Group. “If you have a steady income, manageable debt and a healthy savings account… you’re likely in a good position to consider buying.”
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You Have an Ample Emergency Fund
If your emergency fund is well-padded, you’ve got the first box for being able to buy a home checked off (though, alas, there are even bigger boxes to check, which we’ll cover).
“I like to advise my clients to think about worst-case scenarios,” said Jennifer Okhovat, a real estate agent with Compass in Los Angeles. “If they purchase a home, and have an unexpected job loss, would they be able to pay for the home for six to 12 months in that circumstance? Because it may take that long for a home to sell, and it may take that long to find another job.”
You’ve Got Enough Saved for a Down Payment
The traditional down payment on a home is 20%, but, depending on your circumstances, you may be able to put down less. That said, you still need a giant nest egg for this cost.
“You should have some savings set aside for a down payment, which shows the lender you’re financially responsible and prepared to invest in your future home,” Gupta said.
You Understand Your Debt-to-Income Ratio
We don’t hear enough about the importance of your debt-to-income (DTI) ratio. This is a key factor in securing a mortgage.
“Ideally, your total monthly debts (including the new mortgage) should not exceed 36% of your gross monthly income,” Gupta said. “If you’ve paid down or reduced your debt, and your DTI is in line with lender requirements, you’re closer to being mortgage-ready.”
You’ve Done Your Research
Buying a home isn’t just a purchase, it’s an investment. And it’s not just an investment in real estate; it’s an investment in a specific market.
“Have you researched the market, compared different neighborhoods and determined the type of home that fits your needs and lifestyle?” Gupta asked. “Understanding the local market and knowing what you can afford will ensure you make a well-informed decision.”
You’re Stable in Your Career and Lifestyle
Lenders lean toward candidates with job stability and a proven track record of steady, reliable earnings.
“If you’ve been employed at your current job for at least two years and have a reliable income, you’ll have a better chance of securing a mortgage,” Gupta said. “Additionally, having a stable lifestyle (no major relocations or drastic life changes expected in the near future) will give you peace of mind as you make this big decision.”
You Have a Clear Vision of What You Want
“Knowing exactly what you’re looking for in a home can speed up the buying process and reduce stress,” Gupta said. “Whether it’s a certain neighborhood, size or amenities, being clear on your priorities will help you narrow down your options and find the right place without feeling overwhelmed.”
You Can Cover Long-Term Costs of Maintenance, Repairs and More
You need to make sure you can afford all the other costs of homeownership — costs beyond the down payment, mortgage and property taxes. We’re talking repairs, maintenance and, if applicable, HOA fees.
“I believe one of the strong signs you’re ready to buy your first home is that you have the bandwidth and financial means to take care of the unexpected repairs and costs that may come with homeownership,” Okhovat said. “In most cases, especially if one is not purchasing a new-construction home, there are maintenance things that will come up: rises in HOA dues, gardening and landscaping, structural repairs and yearly maintenance (including but not limited to HVAC, roof tune-ups, sewer hydro jet and more).”
What makes these costs especially cumbersome is that they often come with even more costs you may not have saved for. Plus, they may require time, research and strategy.
“Not only could all of these items have unexpected costs associated with them, but they also involve project management such as sourcing trustworthy tradesmen and overseeing the repair,” Okhovat said. “I always advise my clients to have an emergency fund prepared to tackle the bigger repairs in the event they come up unexpectedly.”
You Feel Confident and Ready
Once you have all the above boxes checked and are in a good position to buy a home, it’s important that you also feel good. You’re ready to buy only when you feel confident that you can.
“Another sign that one is ready to buy their first home is actually feeling ready,” Okhovat said. “I believe strongly in gut instinct and trusting oneself to know they are ready and committed to homeownership. There is no way other to explain this than being self-sufficient enough to recognize this. If you’re confident that you can own a home, then there is a good chance that there is a home out there that you can purchase.”
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This article originally appeared on GOBankingRates.com: 10 Key Signs You’re Ready To Buy Your First Home
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