Buying your first house is a serious financial and emotional decision, so first-time buyers should be sure they are ready before taking the leap. There are advantages to both buying and renting, and in the early stages of adult life, the latter may actually be a better decision.
If you think you’re ready to buy your first home, though, consider the following signs to double check.
- You’re ready to put down roots
Purchasing a home is generally better for your finances than renting, as you get to keep the money that you build in equity. However, the other costs associated with buying a home mean that you won’t see these benefits until after at least a few years. The general rule of thumb is that buyers should expect to be in the same place for five to seven years at minimum before moving on. After this point, the equity you get back in a sale should be enough to justify the costs of purchase.
- You have significant savings
Purchasing and owning a home is expensive. In addition to monthly mortgage payments, even well qualified homeowners can expect to put down a down payment of between 3 and 5 percent, closing costs and possibly private mortgage insurance. Once you own the home, there will inevitably be repairs, replacements and general maintenance that needs to get done.
- You know your credit score
Getting a home generally requires a good credit score, especially for non-government-backed loans, which may offer more favorable rates. The number to hit varies, but the minimum is often around 620. Bear in mind that the minimum credit score to qualify for a home loan may come with less than favorable terms. The higher your score is, the better off you are. Check your credit score for free on AnnualCreditReport.com. You get one free score per credit rating institution per year, so you may wish to space these out over time if you’re trying to build credit.
- You’re already pre-approved
Unless you have the cash to buy your home outright – highly unlikely – you will need to take out a home loan. As a first time buyer, it is very helpful to demonstrate your ability to take out this size line of credit. This will help you to be taken more seriously, both by real estate professionals and sellers. Getting pre-approved means that your lender has reviewed your financial information and has guaranteed that it will give you a certain sized mortgage.
The feeling of owning your own home and the responsibility that comes along with that is an essential part of growing up in American society. Happy home hunting!
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