Signs You're Ready to Buy Your First Home
Updated December 5, 2016 . AmFam Team
Are you thinking about becoming a first-time home owner? The fact that it’s on your mind means it just might be the right time to start the home buying process. But it’s a big decision that requires some serious thought.
The good news is there are a number of telltale signals that can help you figure out if it’s the right time to buy a house — and other signs that indicate the moment may not be right. So before you make this life-changing leap, consider asking yourself these questions to see if you’re ready to buy your first home.
Is your credit in great shape?
It’s key to keep your credit in good shape — that should be a top priority. Not only will good credit help you get a loan, it can save you thousands and thousands of dollars over time. You may qualify for a more affordable interest rate with good credit, and lenders may be more willing to offer you incentives that can save you money at the closing table.
Managing your credit profile and actively monitoring your credit rating can really pay off. By picking up optional coverage to monitor your credit, your finances may be better protected if an attempt is made to steal your identity.
Do you have money in the bank?
A down payment is a big chunk of change and a significant step in the buying process. The great news for first-timers who don’t have a huge savings account — you can buy with as little as 3.5% down. That’s still serious money but much more achievable for many. Just be careful not to spend everything you have on the down payment.
If you’re short on savings, take time to build up an emergency fund before you start shopping for homes. Once you have about 6 months-worth of mortgage payments in savings, you should typically be able to manage the down payment and all the expenses you’ll encounter when purchasing a home. You’ll need cash for closing costs, insurance and taxes. And you’ll want some left over for that new set of furniture!
Are you ready for the responsibility?
And the last — but maybe the best — sign you’re ready to buy: you know you’re ready and willing to take on this big responsibility! You’re aware there will likely be leaks, creaks, drafts, rickety roofs and worn-out water heaters. But if you’re confident you’ve got what it takes to take on these challenges and more, then you just might be ready to buy!
If your answer is less than an emphatic YES!, that’s ok too. You may be wise to hold off on purchasing a home. In some markets, from a financial standpoint you may be better off renting versus buying — especially if you’re planning on staying only a few years. Because local and state taxes, costs of living and markets vary across the US, renting may still be right for you.
Steps to Buying Your First Home
If you’ve made the decision to buy your first home, it’s important to take the time to educate yourself on the home buying process. How do you save for a down payment? Where should you buy home insurance? And what’s the deal with being pre-qualified versus pre-approved for a mortgage? Don’t worry — we’ve highlighted each step of buying your first home so you can start your home buying journey with confidence.
Once you've taken the leap and purchased your first home, connect with an American Family Insurance agent (Opens in a new tab) to learn all the ways your homeowner insurance can help make sure your new hard-earned dream never goes unprotected.
This article is for informational purposes only and based on information that is widely available. This information does not, and is not intended to, constitute legal or financial advice. You should contact a professional for advice specific to your situation.
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- Saving for a House
There are a few defining moments in our lives. For some, it’s the realization that buying that first home is within reach, both financially and emotionally. It’s a big step, and it’s one that’s built into the American dream. And if you’re left wondering how much money you should save before buying a house, you’re not alone. These costs can add up quickly.
After you’ve made the big decision to start shopping for a home, you might be surprised to find that coming up with the cash down payment is only one of several financial hurdles you’ll need to clear. Exactly how much you should save for a house depends on a number of factors, like the value of the home you’re targeting and the amount of money you intend on pushing into your down payment.
- Pay Off Student Loans or Buy a House?
After college, life moves fast. You get your first big job, move out of your parents’ house and start a whole new life on your own. For most people, this also means paying off student loan debt from your college tuition. Having this debt may make big milestones like buying a house seem far off, but there are ways to make the leap from renter to homeowner even if you have student loans. So can you get a mortgage while also paying off student debt? Or should you wait to pay it off before you buy a house?
Every situation is different, so it’s important to do the right research and choose the best option for you. Luckily, we’ve done some of the breakdown for you to help you decide whether to pay off your student loan entirely or buy a house.
Can Student Loans Affect Buying a House?
Typically, student loan debt doesn’t prevent you from getting a mortgage. The biggest thing to note is that student loan debt does influence your debt-to-income ratio, which is a factor lenders consider before giving you a loan. It can also affect the interest rate you pay on your mortgage.
Buying a house with defaulted student loans
If you’ve defaulted on your student loans, it’ll be more difficult — but not impossible — for you to get a mortgage. Because defaulting negatively affects your credit score, lenders will be less likely to want to give you a loan or will charge a much higher interest rate on a loan.
Getting a home loan with student loan deferment
If you’ve deferred your student loans, this usually won’t affect your chances of getting a mortgage. Just be sure to consider how the future estimated payments will factor your debt-to-income ratio. Some types of mortgages may reject applicants with deferred loans, so do your research on the different types of mortgages before shopping.
Should You Pay Off Student Loans Before Buying a House?
Buying a house is expensive, there’s no doubt about that. It can seem smart to hold off on house shopping while you still have student loan debt, and it can be even more difficult to save for a house if you’ve got a high debt-to-income ratio. But if you have enough income to handle the payments for both, you may want to consider investing in your first home.
Signs You Should Pay Off Student Loans
When considering whether to pay student loans or save for a house, there are a few factors that can help you decide if paying off your student loans should be a priority.
Your debt-to-income ratio is too high
If the amount of money you bring in monthly or yearly is almost the same as the amount of money you pay out in debts — like student and car loans or credit cards — it may be best to pay down your debt before buying a house.
You’ve defaulted on your loans
Defaulting on your loans has a severe negative impact on your credit score, which tells lenders that you’re a bigger risk to take on. Work on improving your credit score before shopping for a mortgage.
You’re struggling to make payments
If you feel like you’re living paycheck to paycheck or struggling to make payments on your loan every month, it’s best to hold off on saving for a house. Need help keeping track of your student loan payments? Try our student loan payment tracker to get organized.
You haven’t saved for a down payment or emergency fund
Before you start picking out which houses you want to tour, you should take a look at your savings. If you don’t have enough for a 5 to 10 percent down payment or enough as an emergency fund for home expenses — like a broken dishwasher or damaged roof — take more time to put money away for your first home.
