Signs You're Ready to Buy a Home
If you’ve been thinking about buying a home but you’re not sure you’re ready, here are some signs that homeownership is the right next step for you.
Buying vs. Renting
In some ways, making a mortgage payment may seem similar to paying your rent every month, but aside from the fact that both a rental and your home give you a place to live, that's where their similarities end. There is definitely a time and a place for both renting and buying.
Renting is great for shorter-term housing solutions. When you're renting, it's the landlord's responsibility to see to proper upkeep of the property and ensure that anything is broken gets fixed.
When you own your home, you get the perk of getting to customize your home and making modifications to your heart's content. That being said, when something breaks, leaks, or needs replaced, you need to make sure it gets fixed. For some people, this may be a relief. For others, it may seem overwhelming. At the end of the day, this is something all homeowners deal with.
All that said, the best part about homeownership is that you're continually building equity in your home. Your equity can help pay you back in the future if you need to borrow against it. In addition, any home improvements you make can help build even greater equity in your home. This all adds to the value of your home, adding a greater return on your investment when you eventually sell.
Once you decide you're ready to own a home, prequalification is the next step in your home search. While prequalification is not required, we cannot recommend them enough. Prequalification will help you during your home search in a few ways.
What is prequalification?
Prequalification is an easy process that won't take you too long. When you apply for prequalification, you'll be asked for information about the type of property you might want to buy. You'll need to provide the location of your potential home, estimated property taxes and insurance, and what you think the purchase price will be. These are answers that can be changed later on in the application. For the most part, the loan officer processing your application just needs a starting point to give you numbers.
When you apply for prequalification, there is also an inquiry on your credit. While these inquiries can damage your credit, the information gained from a prequalification is more valuable than the ding to your credit score. Even if you forgo prequalification, there will be an inquiry on your credit score later on in the mortgage process. The choice is whether you have it sooner or later.
Once you've submitted your application, you should hear back from your loan officer in less than a day. You'll be asked to send in your pay stubs, W2s, and other documents verifying your employment. You should usually have a good idea of how much you are prequalified for in less than a week.
How much can you afford?
Whether budgeting is a new practice for you or you’ve been sticking to one for a while, looking to buy a home is a great time to reevaluate your finances and assess what you can afford. Even if you’re prequalified for a certain amount, that doesn’t mean you can afford a loan of that amount.
Take a look at your budget. How does your savings stack up to your discretionary purchases and fixed expenses? Is your budget in a place where you can take on additional expenses, or would your mortgage payment need to be about the same as what you're currently paying for rent?
You can calculate how much of a loan you can realistically afford based on current interest rates by using affordability calculators online. That being said, try not to get paralysis by analysis. Everyone's situation is different, from their credit score, debt to income, and financial situation. These calculators can be helpful but don't dwell on them too long before contacting our mortgage team. They'll be able to provide you with clearer answers than a calculator can.