You've been renting for a while, and have been thinking it's finally time to "settle down" and buy a house.
After all, it seems as if all your friends buying, so it must be time for you to buy a house too, right?
While it can be exciting and fun to think about laying down roots in a place of your own, it's also a big financial investment, likely the largest in your life.
Here are some basics to determine whether you're ready to buy a house, from a financial point of view.
You've got a steady income. Just like your rent payment, your mortgage is going to be due every month too, so you should have the financial means to make that payment. In addition, with homeownership comes other costs that may not have been included in your rent, like electricity, heat, and general maintenance for your home and the yard. To your bank or lender, a steady income means that you are more likely to repay your loan.
Low to medium debt. If you're too deeply in debt, it's unlikely that a bank would consider you a good candidate to take on more debt. Work on getting that debt down to a more manageable level.
Cash for down payment/closing. A down payment is the amount of money you spend upfront to purchase a home and is combined with a home loan to fulfill the total purchase price of the home. The amount of your down payment, along with your credit score, credit history, total debt, and annual income will be influential in how much of a loan you can qualify for. Closing costs are fees paid to third parties that help to facilitate the sale of a home, and can vary widely depending on where you are buying. Some of these fees include a loan origination fee, a fee for running your credit report, a fee for the appraisal, a fee for title search, etc.
Two months of paystubs and bank statements. The information on your bank statements and paystubs will be used to verify many things on your loan application, including account numbers, addresses, names, institutions, etc. In addition, the need for bank statements, if bringing cash to the closing, is to verify that you have that money available to you. Also, they will double check to look for any large deposits that might be new loans, and thus new payments. Overdrafts and late payments when reported to the credit bureaus may affect the interest rate that will be offered to you; it may give them a good reason to charge a higher rate.
Two years at the same company or in the same industry. While many financial institutions may not have a set-in-stone rule for judging employment history, they will want to see a pattern of income stability. This shows that you are more likely to repay your loan, which might also result in a lower interest rate for you.
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