5 Ways to Know Your Ready to Purchase a Home

Owning a home is one of the main goals for most people who want to secure their financial future and invest in real estate. There are many different steps to take to purchasing a new property and getting approved for a home loan. To ensure that you're qualified for the process, there are a few ways to know if you're ready to purchase a home of your own.

1. Your Job is Stable

One of the main factors that lenders evaluate is if an applicant has stable employment to ensure that they can make their mortgage payments each month. You'll need at least two years of employment history with the same company or business without changing jobs frequently. You should also avoid becoming self-employed or changing jobs during the application process, which can put you at risk of being denied.

Stability will also allow you to make repairs and perform maintenance on the house when it's needed throughout the year. This will allow you to increase the value of your home over time for proper upkeep.

2. You Have a High Credit Score

Your credit score will ultimately determine your interest rate and reveals how well you maintain your finances. It's important to maintain a high credit score, which will prove that you are responsible with handling debt that you've acquired. Work hard to make the payments on time and keep your credit card usage under 20 percent of your available balance on each account. You'll also want to research the credit repair companies to obtain guidance on how to increase the score. This will allow you to remove errors that may be on your credit report while also avoid making future mistakes that can cause you to become denied with your home loan application. Applicants will be required to have a credit score of at least 580 to qualify for an FHA loan with a downpayment of 3.5 percent.

3. You've Saved for a Down Payment

You'll be ready to purchase your first home when you've saved enough money for your down payment. The amount of money that you put down on the home will also influence the interest rate and can lower your monthly payments. Most people save five to 20 percent of the value of the home to put down for conventional loans that have a 30-year fixed mortgage. You'll also need to save extra money for the closing costs, which cover expenses that include appraisal fees, title insurance, attorney's fees, pest inspection fees, and a loan origination fees. Closing costs are typically two to five percent of the value of the home and can equate to thousands of extra dollars. Lenders often require you to obtain mortgage insurance if you have a smaller down payment.

4. You've Determined What You Can Afford

One of the most important steps to take to know if you're ready to buy a home is to determine what you can afford. You'll need to know what type of home you're capable of purchasing without feeling financially strained with home ownership. Calculate what you can afford by multiplying your household income by two or three. You'll also need to calculate how much debt you've accumulated with your debt-to-income ratio.

Other expenses will also be included in homeownership and should be accounted for, which includes the cost of utilities, taxes, HOA fees, and homeowner's insurance.

5. You Want to Settle Down

Home ownership is an ideal option for those who are ready to settle down long-term on a property. It's important to be happy living in a certain city or region and avoid moving in future years. Although buying a home is a smart investment, it can cause you to lose money if you move too quickly and only own the home for a year or two. Be prepared to settle down long-term and to avoid financial loss.