Your career and personal life have fallen into place, and you’ve started asking yourself that all important question: “Am I ready to buy a house?”
While purchasing a home can be a good investment, and most people want a piece of the “American Dream,” buying a house isn’t for everyone, and now might not be the right time for you. There are many factors to consider before you sign on the dotted line, including your personal finances and current market conditions.
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11 Signs You’re Not Ready to be a Homeowner, Just Yet
While your heart may be ready to buy, your wallet might not be. Read on to find out if now is not the right time to house shop.
1. You Plan on Moving in 5 years or Less
Buying and selling a home costs money, and if you don’t plan to stay in the home for at least 3-5 years, the home’s appreciation may not cover the closing costs. If you think you might change jobs or want to move in the next 5 years, hold off on purchasing a home until you are more settled.
2. You Just Landed a New Job
While your new gig might be a step up, mortgage lenders want to see a solid history (at least 2 years) at a job and they calculate your average income based off of this. If you just started a new job or are currently looking, hold off on purchasing until you are settled in your new position and confident in your income.
Related: What’s the Best Time to Buy a House?
3. You’re Indecisive About the Type of Home You Want
You might think that you want a single family residence, but wouldn’t it be nice to earn rental income with a duplex? Learn about your options before you decide on a specific type of house.
4. You’ve Only Considered the Sticker Price
If you want to purchase a home, you need to be prepared for “other costs” including closing costs, property taxes, HOA fees, home maintenance/repair costs, and the decorative purchases that will make your home yours.
Related: What Will My Monthly Payment Be on a House?
5. Your Finances Are Out of Order
If you are living paycheck to paycheck, have massive credit card debt, no savings account, or are dipping into your retirement account to make your bills, you’re not ready to purchase a home. Determine a budget, living below your means, in order to pay off debt and position yourself to take on the responsibility of homeownership.
6. You’re Drowning in Debt
It’s wonderful to make a lot of money, but if you also spend a lot, that’s going to factor into your ability to buy a home. Lenders look at a debt to income ratio (how much do you make vs. how much you spend/owe) to determine your fitness. The highest ratio most lenders will consider is 43%. You can figure yours by adding up all of your monthly debt payments and dividing the total by your gross monthly income.
Related: How to Get a Mortgage With Collections on Your Credit Report
7. You Have a Below-Average Credit Score
Your credit score allows a mortgage lender to assess your ability and willingness to pay your mortgage loan on time, every month. In return for a history of paying bills on time, you will receive a lower interest rates and a lower monthly payment.
Excellent credit (760-850) will earn you the lowest rate possible, whereas Moderate (620-66) or Poor (580-620) credit will cost you 1.5-4% higher.
This can add up to a hefty monthly payment, so it’s best to repair your credit before shopping.
Click here to download our FREE guide to repairing your credit after a bankruptcy or foreclosure.
8. You Haven’t Saved for a Down Payment
While there are programs that can be used to finance your home 100%, ideally you will put a down payment on your house. Banks would like to see a 20% down payment, but that isn’t feasible for everyone. If this is your first home, figure a down payment of 3-6% of the home’s sales price.
9. You’re Not Sure You Can Afford the Monthly Payments
Different from renting, in addition to your mortgage interest and principal, you will have to pay HOA fees, homeowners insurance, and taxes, not to mention upkeep on the home that your landlord had previously covered.
10. You Have No Emergency Savings Account
Job loss, disability, and exploding water heaters happen. You should have three month’s worth of expenses saved up in an account for those “just in case” times.
11. You’re Prioritizing Other Big Purchases
If you’re looking to buy a new car in the immediate future or take that cruise around the world, now may not be the best time to buy a house. Purchasing a home is a huge undertaking and it should be your priority.
Until You’re Ready to Become a Homeowner…
There is nothing wrong with renting a house before you buy one. This will give you an opportunity to discover what it costs to maintain. While maintenance should be covered by your landlord, find out how much upkeep costs and put that money into a savings account. This way you’ll know you can handle the expenditure, and you’ll have some saved up for your eventual purchase.
It’s also important to develop a relationship with a real estate agent that you can trust. They will help you determine if now if the right time for you to buy or show you how to get your finances and life in order so that you can finally say “I’ll take it.”
