With 2022’s hot housing market, you may find yourself asking, “am I ready to buy my first home” Buying a house is a major commitment. Before you begin shopping for properties or comparing mortgage options, consider exploring if you’re ready to be a homeowner. Let’s look at some of the factors that lenders and homeowners alike should consider.
Income And Employment Status
In addition to how much money you can earn, your lender will want to see a 2 year work history to make sure your income source is stable and reliable. Preparing yourself for this step is simply about pulling the right documentation together to show steady employment. If you’re on payroll, providing recent pay stubs and W-2s. should suffice. If your self -employed, be prepared to submit tax returns and other documents.
Debt-To-Income Ratio
DTI is another tool mortgage lenders use to evaluate your loan application. Your DTI helps your lender see how much of your monthly income goes to debt so they can evaluate the amount of mortgage debt you can take on. It’s calculated by dividing your monthly debt by your gross monthly income. Your lender will use the debts shown on your credit report to calculate your DTI.
It’s a good idea to review your DTI before you apply for a loan. In most cases, you’ll need a back-end DTI of 43% or less to qualify for the most mortgage options, although this number varies based on your lender, loan type and other factors.
Liquid Assets
Even with the help of a mortgage, you’ll still need a couple of liquid assets to fund the purchase of a home such as a down payment and closing costs.
Down payment:
Buying a home with no money down is possible, but most homeowners need to have some cash for a down payment. A down payment is the first major payment you make on your loan at closing. The amount of money you’ll need for a down payment depends on your loan type and how much money you borrow. You can buy a home with as little as 3% down,
Closing costs:
You’ll also need to pay for closing costs before you move into your new home. Closing costs are fees that go to your lender and other third parties in exchange for creating your loan.
The specific amount you’ll pay in closing costs will depend on where you live and your loan type, usually 3 – 6% of your home’s value is a rough estimate of your closing costs. In some situations, part of closing costs can be rolled into your mortgage or paid by the seller using seller concessions.
Credit Health
Your credit score plays a huge role in what loans and interest rates you qualify for. Your credit score tells lenders how much of a risk you are to grant a loan. Improving your credit score and reducing your debt can pay off big as you prepare to get a mortgage. Better numbers mean better loan options with lower interest rates. What score will you need to qualify for a home loan? Most lenders require a credit score of at least 620 to qualify for the majority of loans. A score above 720 will generally get you the very best loan terms.
Timing
Deciding whether it’s a good time to buy or not depends on a variety of personal factors like financial readiness and lifestyle preferences, and market conditions such as economic health and current mortgage rates.
Exploring the question, “am I ready to buy my first home” is a great exercise to spend some time on. Ultimately, the right time to buy a home comes down to your own unique situation. Our team at Ash Quinn Realty is such a great resource to help you with any questions you may have regarding readiness. We would love the opportunity to meet you where you are in your exploration. Contact us here and feel free to connect with us on Facebook and Instagram.
