Is 2021 the Year You Stop Renting and Become a Homeowner? Here’s How to Tell
Homeownership comes with lots of perks. You can build wealth, put down roots, and, most importantly, stop throwing cash down the proverbial hole (i.e., your landlord’s pockets!)
Unfortunately, there’s a lot that needs to fall in place in order to buy a home — both financially and logistically.
Want to see if you’re in a good place to take the first step toward homeownership?
Review this checklist and see if you’re ready to stop renting
1. You’ve prepped your credit.
Your credit plays a huge role in your ability to get a mortgage loan and buy a house. Not only does it impact whether you qualify for a loan or not, but it also influences the interest rate you get if you do.
If you want the best shot at qualifying for a loan and getting an affordable rate, you’ll want to spend some time working on your credit before applying. Settling any overdue payments or accounts in collections can help, as can paying down your debts. You should also pull your credit report and alert the credit bureau of any issues or errors you might see. This can boost your score as well.
2. You have a down payment saved up so you can stop renting.
Your down payment plays two roles. First, there’s usually a minimum amount your lender will require before they’ll approve your loan. On FHA mortgages, this is 3.5% of the purchase price — or $7,000 on a $200,000 home.
The size of your down payment will also influence your interest rate. A bigger down payment reduces the risk your lender is taking and will usually qualify you for a lower rate. A smaller down payment? That does the opposite.
3. You know your budget.
You’ll also need a good handle on your budget — both upfront and monthly. How much can you afford to spend initially, including your closing costs, down payment, and other upfront fees? Then, what about monthly? How much of a mortgage payment can you afford and still comfortably handle your household expenses and debts? You can use a mortgage affordability calculator to help home in on this second number.
4. You’ve got steady income.
Mortgage lenders want to see that you have a steady, consistent income with which to make your mortgage payment. In most cases, two years at the same job is preferred, though sometimes, you may be able to get by with less if you’ve been in the same industry for a while (or your income is high and your debts low).
5. You have an emergency fund.
You should never plan on using all of your savings for a down payment. Though a decent-sized down payment is smart, it can actually end up hurting you if it drains you completely dry.
That’s because homeownership can come with lots of added costs you might not be used to. There’s more maintenance and upkeep, you’ll likely have more space to heat, cool, and power, and you’ll also have some sudden repairs from time to time too. You’ll want an emergency fund to help cover those just in case.
6. You’ve researched your mortgage options.
You don’t have to understand it all, but having a good idea of what mortgage lender you’d like to use — as well as what type of mortgage you’ll apply for — is a good idea, as it can help you better understand the requirements you’ll need to meet to qualify if you’re ready to stop renting.
If you’re not sure, ask friends and family for lender recommendations, and then call up a loan officer there. They can answer all your questions and help you determine the best mortgage product for your goals and budget.
7. You know what you’re looking for — and where to find it.
Start to home in on what you want in a house — the size, amenities, features, and more. Divide the list into must-haves and nice-to-haves, and use that to set up listing alerts on platforms like Realtor.com, Zillow, and other sites. You should also zero in on the communities you’re willing to buy in. That might mean researching school districts and commute times or just driving around in potential areas.
8. You’ve found a good real estate agent.
Finally, start interviewing real estate agents. Not only can a good agent help you find the right home, but they can also negotiate on your behalf, walk you through the mortgage and closing process, and assist you in other parts of the buying journey — like setting up your home inspection or arranging for a home warranty.
Think you’re ready to stop renting and buy your first home?
If you’re eying a home purchase but aren’t sure if you’re ready, get in touch with an Embrace Home Loans office in your area today. Our loan officers can help point you in the right direction.