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Commonwealth

The Commonwealth Blog

Monday, July 23, 2018

How Do I Know If I'm Ready to Buy a House?

You’re ready to buy a house if you’re financially independent, have enough savings to cover a down payment and still pay off unexpected costs, and are or nearly are debt-free. At least, that’s what the ideal scenario looks like. There are some areas that are give-and-take, and the truth is that almost no one fits the ideal scenario.

But you can still rate yourself on your readiness to buy a house based on how well you can immediately answer the requirements of a home purchase. See how well you fit into the following scenarios:

The Estimated Monthly Mortgage Payment Is Affordable

Online calculators can help give you a very rough idea of how much your mortgage might cost, but opening up a conversation with a lender is probably a more accurate way to understand what your financial burden might look like on a monthly basis.

Conventional wisdom recommends that you spend no more than one-third of your gross income on rent, but it’s much wiser to calculate your spending limit based on your net income. If you do, you can build in a bit of cushion for when bidding on the house begins. If you end up lower on your mortgage than you thought, that’s fantastic – if not, at least you’re not stretching your budget as much as you would be if you were relying on gross income figures.

A Down Payment of at Least 10% Is Ready

10% is OK – but it also comes with mortgage insurance. Yep – if you can’t put 20% down on your house, you’re required to buy mortgage insurance that will slightly raise your monthly financial responsibility.

However, 10% is better than no down payment. Most lenders won’t even give you a loan if you’re not ready with some kind of down payment, but 10% shows that you’re serious enough to deliver on your outstanding debt.

Income Is Regular and Reliable

Your income should be something you can count on to stay consistent or rise if you’re thinking of making a home purchase. Be sure that you’re settled in one place for a good amount of time, your standing with your company is positive, and you have the opportunity for financial growth.

Look for something more stable if you’re performing contract work or just starting as a freelancer. If you’ve established a strong network through long-term freelance work, you’ll probably be able to handle a mortgage even if you have to weather some difficult months will little work.

Debts Are Paid or Nearly Paid

If you’re waist-deep in educational debt, car payments, furniture and credit card payments, and personal loans, adding a mortgage to your already heavy burden is not a smart next step. Instead, pay off your highest interest loans first, even if they have the largest principal. Once you’re down to one or two low-interest debts, you can start considering how a mortgage will affect payment of those debts.

Don’t take home purchasing lightly. It’s an enormous step in your life, and it’s imperative that you do it right and set yourself up for mortgage payment success.


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