First-time home buyer: Are your finances ready to purchase a home?

In this article:

There are three key questions you should ask yourself when you’re a first time home buyer”

“Do I have a steady job and reliable income?”“Is my credit history reasonable?”“Do I have money saved up for more than just my down payment?”

If you can answer all three questions with “yes,” it may be time to consider homeownership.

Verify your new mortgage rates today!

“Do I have a steady job and reliable income?”

Before you choose to buy a home, you’ll want to be reasonably certain that you can make its monthly payment.

You can’t know for sure that your job or income won’t change — life happens, after all — but an objective analysis will go a long way.

For example, if you’re planning to leave your full-time job in favor of self-employment, be aware that such a switch may be trickier than it appears.

Related: Are You a Self-employed Borrower? These are the rules

Because of the potential risks associated with becoming self-employed, mortgage lenders require at least one to two years of income from you in your new position.

Many new businesses fail, just like new restaurants.

You should also be aware that your new job will result in a decrease in guaranteed income. This can affect stability.

Sometimes, attorneys who become partners in their firms overlook this point. Your overall income will increase, but your guaranteed salary will be lower.

Verify your new mortgage rates today!

“Is my credit history reasonable?”

You don’t need perfect credit to purchase a home. In fact, you don’t even need great credit.

A lender can approve you for a mortgage, even if your credit history includes foreclosures, bankruptcy, or short sales. Your credit score must be acceptable.

Do not overlook the negative aspects of your past credit history when looking at your credit score. The past five to ten years back is history.

What matters is how you’re managing your credit today.

Related: What credit score are you required for a mortgage loan?

If in the last six-to-12 months, you’ve kept credit card balances well below their limits, paid your creditors on time, and not added new accounts, you’re managing your credit well. This period should see a rise in your FICO (credit scores).

It’s your most recent credit history that affects your credit score the most. Bad behavior can lower your score, while good behavior will increase it.

Make sure to have a clear understanding of your debt before you buy a house. Overloaded homeowners can make homeownership a difficult experience.

“Am I prepared for homeownership?”

When you’re thinking of buying a home, it’s important to think about your down payment — even if your plan is to use 100 percent financing.

This is because thinking about a down payment forces you to think about your savings and, as a homeowner, you’re going to need your savings.

It’s often overlooked that the cost of homeownership ranges higher than just your monthly payment. There are real estate taxes to pay, homeowners insurance bills to cover and, like with the homes you’ve rented in your life, things break.

Related: Mortgage reserves for home loan approval

Homes can be expensive to maintain — even the new ones.

As a homeowner, you should plan to set aside 1.5 percent of your home’s value each year to cover the costs of maintenance and repairs. Some years, you will just a portion of what you’ve earmarked. Other years, you’ll use all of it.

You should also make sure that your household savings accounts hold at least six months’ worth of living expenses, and preferably, twelve. You may be unable to make your payments on your home if your income is affected by illness and job loss.

It’s important that you’ve set aside savings.

Did you decide that you’re ready?

They are at their highest level in a decade and will continue to climb. Today could be a great time to become a homeowner, considering that interest rates are still at historic lows.

Verify your new mortgage rates today!

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