Are you ready to buy a house? Here’s how to know.

Buying a house is one of the bigger investments we make in life. It’s a decision that requires careful consideration and preparation. Whether you need more room for a growing family, less room now that your kids are grown up and living on their own, a location that is closer to your employer, better schools or you are just ready to stop renting, assessing the factors that contribute to your overall readiness is the first step you should take.

Here are a few things you can evaluate to help determine if you are ready:

Financial Stability: Do you have stable income and sufficient savings? When looking at your savings and current income, consider your ability to cover a down payment of 15-20% of the cost of the home and ensure that you will be able to cover your new mortgage payment, property taxes, insurance and maintenance costs without compromising your other financial obligations.

Current Expenses: In addition to looking at how much money you’re bringing in each month, reviewing your current expenses is a must when you are considering purchasing a home. The ratio of your expenses to your income (typically called Debt-to-Income or DTI by lenders) plays a significant role when it comes to getting approved for a mortgage. Your Debt-to-Income (DTI) is the percentage of your gross monthly income (before taxes) that goes towards payments for rent, mortgage, credit cards, car payments or other debt. For a Non-QM loan, your DTI will need to be 55% or less. You can calculate your DTI yourself to get an idea of where you’re at. To calculate your debt-to-income ratio:

  Step 1:  Add up your monthly bills which may include:
– Monthly rent or house payment
– Monthly alimony or child support payments
– Student, auto and other monthly loan payments
– Credit card monthly payments (use the minimum payment required)
– Any other debts that have monthly payment amounts

Expenses like groceries, utilities, gas or entertainment are generally not included in this calculation so don’t add any of these in.

  Step 2:  Divide the total you came up with in step 1 by your gross monthly income.  Remember, your gross monthly income is what you make before paying taxes.

Credit Score: Now would be a good time to request your free, annual credit report from www.annualcreditreport.com. If your credit score is below 600, you may want to hold off on the pursuit of buying a home and instead work on improving your score. Higher credit score usually get more favorable interest rates which can save you money over the long term.

Personal Readiness: Homeownership requires a willingness to handle new things like regular maintenance such as yard work and seasonal upkeep. It requires the ability to handle unexpected expenses for leaky roofs, broken appliances, new paint, etc. Owning a home requires stability and commitment and a level of emotional readiness to settle down in a particular area for the long term.

Evaluate Your Family’s Needs: Will you require 4 bedrooms? Do you want a garage? How many bathrooms do you need? Is privacy and acreage important? Buying a house when prices are favorable can be advantageous, but timing the market perfectly is difficult. Instead, evaluate what you need in a home and focus on finding one that matches those needs as closely as possible.

By considering these factors, you can gain a clearer understanding of your readiness to purchase a home. Remember, we are all unique, there is no one-size-fits-all answer. Take your time, seek advice from professionals and make a decision that aligns with your financial well-being, future plans and personal goals.