Before you buy a home, there are a number of questions you’ll want to ask yourself. None are more important than this: Can you actually afford homeownership?
Purchasing a house is almost sure to be the single biggest event in your financial life, and it’s only natural to feel a little trepidatious: Do you have enough for the down payment? Will you be able to keep up with monthly mortgage payments? How do you really know when you’re ready, and how can you determine how much house you can afford?
There are a few telltale signs that suggest yes, you might be in the right financial place to purchase a home. We’ll list some of them here, in hopes that it will help you proceed with confidence.
Also note: For those seeking house selling tips, the SOLD.com report awaits you! Claim your free report today and take the first step toward getting your place sold!
Signs You Can Afford to Buy a House
Your salary qualifies you for a mortgage.
Obviously, if you’re going to buy a home, you’re going to need to qualify for a mortgage loan. If homeownership is something you’re serious about, you can meet with a lender and ask about getting pre-approved. If the lender says you qualify, that’s a pretty good sign that you make sufficient income to put homeownership in reach.
You can also run some simple math. The rule of thumb is to take your annual salary, multiply it by 2.5, then add the amount of your down payment. That number will give you the maximum mortgage you should take on.
You can afford a down payment.
Speaking of down payments… if you can afford one, then that’s another good sign that homeownership is within striking distance. But wait: Don’t assume that your down payment has to be 20 percent. While that’s the traditional amount, there are a number of new loan types that will let you get away with much smaller down payments. In some instances, you can even get a loan for as little as three percent!
All that’s just to say that, if you can afford to put down three percent on a house, then homeownership may be very possible for you; it’s at least worth considering.
You have a credit history.
A common misconception is that, if you have any debt, you shouldn’t take on a mortgage loan. That’s not necessarily the case, and in fact, having some debt can actually make you more appealing to lenders. If they see that you have a credit history and regularly make payments, that shows them you’re a responsible borrower.
But how much debt is too much? If your debt exceeds your monthly salary by more than seven percent, that’s the point at which you may not want to add on a mortgage loan.
You have a solid credit score.
Mortgage lenders will want to check your credit score to assess your loan-worthiness. Of course, you can also check it yourself, and are entitled to one free, no-penalty credit check a year.
A perfect credit score is 850, and not many people attain it! Anything above a 740 is considered to be excellent. And anything above 580 is considered to be acceptable by most lenders. If your credit score is 580 or higher, you can probably qualify for a loan.
You plan on staying put.
One more thing: The general guideline is that, if you don’t stay in your home for at least three years, you’re likely to lose money. Stay for more than three years, meanwhile, and you’re likely to generate some real equity, and end up with a real estate investment that pays off.
All that’s to say that, if you think you might move to a different city or state any time in the near future, you probably want to put off buying a home… not just for practical reasons, but for financial ones, too.
But if you plan on staying where you are for a little while, that’s a good indicator that homeownership is something you should think about.
Get More House Selling Tips
Those are our guidelines for assessing whether you can afford to buy a home.
And for those who want to get their home sold, don’t forget to claim your SOLD.com report. Request yours today!