How to Know if You're Ready to Buy a Home

Determining if You're Ready for the Commitment of Buying a Home

Buying a house is exciting. It is also a big commitment. It is always a great idea to be prepared before your hunting and comparing mortgage rates, take the time to examine your current situation and how it could change in the future.

Ask yourself:

Are you planning on any major life changes, like changing jobs or starting a family, in the next few years that could change your housing needs?

• Can you commit to staying in a home for five years to seven years.

• Do you have a stable income?

• Are you confident you can handle house repairs (or can take the time to learn), or are you willing to pay a contractor for repairs when something breaks?

How long do I need to own my house before it pays off?

Generally, you should only consider buying a house if you plan to live there for at least five years, but this depends on a lot of factors, like the housing market, rental prices and how much equity you have in the house.

Buying vs. Renting a House

Each option has its benefits, so consider what matters to you.

How to Evaluate Your Financial Situation Before Buying a House

Buying a home is one of the largest purchases you'll likely make, and it's important to make sure your financial house is in order. Start by reviewing your bank accounts and billing statements to get a handle on how much money you're making and spending each month. If you're planning to buy a house with someone else (like your spouse), review their finances as well, and then ask yourself some questions:

• Do you have a stable income/job?

• Are you able to put away some money each month into a savings account?

• Do you have a plan for managing debt, like student loans and car payments?

• Do you typically pay your credit card debt quickly? Keeping your credit debt low will help you qualify for a better mortgage.

• Do you have some money already saved up for emergencies? A good rule of thumb is having three months of income saved.

• Do you have some money saved up for a down payment and closing costs? You should avoid using your emergency savings for this, or you could put yourself in a tight situation.

Determining Your Down Payment

How much you need for a down payment depends on the type of loan and how much the house costs, but the more you can put towards a down payment, the lower your monthly payment can be and the more you'll save on interest. High Ratio mortgages requires a down payment of at least 5% of the purchase price and Conventional mortgages require at least 20% down payment.

Along with your down payment, you'll have to pay closing costs which will be at least 1.50% of the purchase piece.

Calculate the home price you can afford using your income and the amount of debt you have.