Being Financially Responsible Series: Your Finances and Buying a Home
There is a popular misconception that to be financially successful you must purchase a home. Although buying a home is a great way to spend your money, it is not the only way to be financially successful. Sometimes homeownership is not the right fit for you and your finances. Use this checklist to see if you are ready to buy a home.
You have a manageable amount of debt – Starting the home buying process when you have uncontrollable amounts of debt will make the process longer and harder. We are not here to say that you have to be debt-free to purchase a home. But lessening your debt to an amount that seems manageable will free up your income to go towards homeowner expenses.
You have a rainy-day fund – Having an emergency savings account can help when purchasing a home. Homeownership comes with many unexpected costs that renters do not expect when transitioning to homeownership. Having a savings account with at least three months of living expenses saved up will help prepare you. Read our article on savings accounts and decide the best one for you to start saving here.
You have a respectable credit score – Having a good credit score can help you in many ways when you are looking to purchase a home. Having a good credit score can get you a loan with lower rates and better loan terms. It can also help by requiring you to put down less as a down payment. Many recommend having a credit score of 740 or more to get these lower rates and have an opportunity to make a lower down payment.
You have a stable income – It seems like an obvious tip for homeownership but having a steady income for at least 2 years at the same employer will help prepare you for the homebuying process. This will help you predict your monthly income to set a budget when looking for homes. Life is unpredictable, so having that stable income can help when making the leap to homeownership.
You have enough money to put toward a down payment – Along with having an emergency savings account, it is important to have money available for a down payment. Many lenders will require a certain amount to be put down as a down payment. There are many different factors that affect what is required as a minimum down payment, but it is almost always required in the homebuying process.
Buying a home is a long process that takes lots of commitment and planning. Although this is the case, following this checklist and talking with an expert will help prepare you for the homebuying process, and will set you up for success.