You’ve been renting for a long time now and believe you’re ready to take the leap into homeownership. Buying your first home is a thrilling experience. For many people, it signifies the final step into true adulthood. However, homeownership isn’t all sunshine and roses, it’s a huge commitment that requires strong financial footing that you may not have just yet.
Let’s take a deeper look at some of the signs that show that maybe you aren’t quite ready for the full financial burden of owning a home.
Low Credit Rating
Your credit rating will have a significant impact on getting approved for a mortgage loan.
If you have a low credit score, a mortgage lender will be unlikely to sign you on for a loan.
In order to qualify for an FHA loan, you have to have a credit score of at least 580 to ensure a decent interest rate (3.5 percent or lower).
The higher your credit score is, the better the loan you’ll qualify for. And as an added bonus, the higher your credit score is, the lower your interest rate will be!
You Can’t Afford a Down Payment
If you have good enough credit, you might not have to put money down at all in order to lock down a mortgage loan. However, if you don’t have enough funds for a down payment of even 10 percent, you should definitely reconsider the home purchase until you have enough put away in the bank. For first time buyers, most lenders will want at least 20 percent down, anything lower and you will have to pay for private mortgage insurance (PMI)— a basic protection that defends the bank against failed or late payments.
A PMI is typically priced around 0.5 and 1.5 percent of the total mortgage, depending on the size of your down payment and credit score. On a $200,000 home, that’s about $1,000 extra per year.
A House Would Hinder Other Goals
As you’ve no doubt realized, owning a home doesn’t come on the cheap. If you’re stressed by financial debt (such as student and auto loans) it might be best to wait on making a home purchase until you’re able to do so without feeling suppressed by debt.
If you do have credit card debt to repay, work on whittling that down before making an offer on a new home. If you’re finances are strapped and making mortgage and bill payments every month comes at the cost of your mental health, you might not be quite ready for homeownership—and that’s okay!
Once you’re able to pay back your loans and other residual debt, you won’t only be in a better financial situation: you’ll reap the rewards of having a better credit score too! Remember, with a good credit score you’ll get a better deal on a mortgage loan for a home you’re the proud owner of!
Once you’re set to move into your new home, there’s one more thing to get: homeowners insurance. An added financial security net that’ll safeguard your home and personal belongings, homeowners insurance is effective and affordable, especially when you compare homeowners insurance quotes online with companies like CoverHound.
Don’t worry about not being able to buy a new home today, wait until you’re financially ready. Once you have all of your proverbial ducks in a row, set up an appointment with a realtor and start your new housing adventure!
