Have you recently decided to become a homeowner? Congratulations – buying your first home is the beginning of the rest of your life. However, you need to be sure that now is the right time in your life to get a mortgage and buy a home.
Whether you can afford it is undoubtedly the most important factor, but there are also a number of other things to consider. Keep reading for our in-depth guide on how to know if you’re ready to get a mortgage.
Note that you certainly do not have to comply all of these criteria; some of them may not apply to you, but you still feel that now is the right time to get up the real estate ladder. These are just important things to consider before making such a big decision.
You have a good financial reputation
No matter how emotionally prepared you are to buy a home, you won’t get very far if you can’t afford a mortgage. In general, you will need a minimum of 5% of the total cost of the property to deposit as a security deposit, but it is better to deposit as much as possible as this will reduce your monthly payment.
Fortunately, you don’t have to do much of the work yourself; With the MIP (mortgage in principle) from Trussle you find out exactly how much you can borrow. First they do a soft credit check, before checking your eligibility with 18 different lenders for an accurate calculation of the mortgage interest you can afford.
However, before approaching Trussle or your chosen mortgage broker, it is wise to do a general overview of your financial standing/budget. Here are some of the things you will be asked about when approaching a lender:
As a general rule, assume that you can afford a mortgage that is up to 2.5x your annual salary. One of the first things lenders ask for is proof of your income, usually in the form of a pay stub or tax return.
If you haven’t been in your current job for two years, you may want to hold off on buying your first home. If you are under one long-term employer, lenders show that you are trustworthy and that your income is very unlikely to decrease or otherwise become unstable.
A good mortgage lender will want to know what your monthly expenses are. Things like bills and insurance are to be expected, but keep in mind that things like unpaid loans or suspicious purchases are also being investigated.
If you have a lot of unpaid debt in your name, you are more likely to default on mortgage payments, so lenders are hesitant to hire you. On the other hand, being financially responsible in general is a good sign that you are ready to buy.
You have a five-year plan
It goes without saying that buying a house means that you are committed to it in the near future. Most mortgages have a term of 25-30 years, but you’ll need to stay in your home for a minimum of five to 10 years to make it a worthwhile investment. There’s no point in becoming a homeowner now if you’re planning to move across the country to be with a long-distance partner, for example — something 14 million couples in the US might need to consider.
Before applying for a mortgage, you may want to ask yourself the following lifestyle-related questions:
- Do I/do I intend to have children?
- Does my current town/city have good career prospects for me?
- Is my chosen home close to work and amenities?
- Do my goals align with my partner’s? (If applicable)
You can ‘be your own landlord’
When you rent a property, any defects or repairs to the property are usually resolved by the landlord at no extra cost to you. Becoming a homeowner means you need to be willing to take on these responsibilities yourself now, and ask yourself if this is something you can commit to/are emotionally ready for.
If your sink is leaking, are you willing to call a plumber or fix it yourself? Do you have plans for what to do if the roof collapses? As extreme as it may seem, it’s better to err on the side of caution. Homeowners should aim to save $1 annually for every square foot of their home in maintenance, so it’s not just the monthly mortgage payments that you need to consider.
If the idea of fixing all of your home’s deficiencies is too overwhelming right now, it’s best to stick with renting for now.
In general, there are dozens of aspects of your life that you should consider before deciding to become a homeowner. By using this guide, hopefully you have gained a better understanding of what it means to be “ready” for a mortgage. One of the most important things is that you are emotionally ready; if you feel this is the right move in your gut, then you are ready to take the first step.