Am I Ready to Buy A Home; Questions to Ask Myself?

Do I have a steady income ?

Income requirements for most home loans must be shown for over a year. Usually the lenders look for the ratio of income to be no more than 35% of your income. You should not even try to spend more than that on mortgage payments because then you are probably paying more than you truly can afford and that’s how people get into the kinds of financial problems that caused so many to lose their homes.

Do I have enough saved for the down payment or a relative who can help me? Usually a down payment minimum of 3.5% is required unless you are using a VA loan or a special grant from the state or city then it may be less or 0 down. With an FHA loan you can have the down payment “gifted “ to you from a relative so you don’t need to have saved this money by yourself.

Do I have enough saved to cover closing costs? There are some costs involved in purchasing a home such as title insurance, escrow and some prepaid taxes in addition to the required down payment. While it is nice to have that extra money saved to pay these “out of pocket”, it is quite common to have these costs either paid by the seller or “rolled” into the loan.

Can I afford the monthly mortgage payments including taxes and insurance? Every home owner needs to pay property taxes to the government and carry homeowners insurance in case of a fire or some disaster occurring to their home. A buyer needs to make sure that they have a little bit of money set aside each month to pay for insurance. Property taxes are due twice annually and in most of California range in cost a little under or over 1.5% annually depending on the area.

Do I have just a few outstanding debts? Everyone has some debts such as car and school payments but if they are manageable then you may be ready. If you have too many debts then you should focus on paying most of them off prior to buying a home.

Will a lender view me as having a “decent track record” of paying my bills on time? Everyone tries to pay their bills on time and the lenders do understand that most of us are not perfect in that department but they do expect you most recently to show that you have been paying most of your bills on time. A “perfect” credit score is 800, which very few people have attained. Currently for an FHA loan at a good interest rate the lenders expect a minimum 600 credit score, some a few points higher or lower depending on the lender.

Will the mortgage payments be “significantly higher” than my current rental payments? Quite often the monthly payments for a home will be slightly higher than for the rental payments. However it must also be remembered that many income tax deductions can usually be taken for home ownership that are being “lost” on a rental situation. However the mortgage payments should not be excessively high. For most “middle income people” the payments should not be more that 25% higher than what you are comfortable in paying for rent based on your income level. To compare the mortgage payments and rental payments you can use my rent vs buy calculator.