I’m a Financial Planner: My Checklist for Knowing If You’re Ready To Buy a Home
Written by
Nicole Spector
Edited by
Gary Dudak
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
It is the dream of millions of Americans to buy a home, yet for so many it may feel out of reach. The difficulty stems from a number of factors including steep interest rates, a shortage of inventory and the lingering effects of inflation.
However, buying a home is feasible for many as well — you just need to know it. This means understanding all the components that go into homeownership so you can recognize if and when you’re ready to make the big move (no pun intended).
Perhaps the best sources to explain how to know that buying a home is a smart decision you won’t regret are financial planners. GOBankingRates consulted with a few of these experts to assemble a checklist to follow when you’re trying to determine if you’re ready to buy a home. Read on for more.
You Know You Want To Invest for the Long Haul
Purchasing a home is a major financial commitment, and one that comes with a lot of work. Be in it for the right reasons.
“Make sure you are buying a house because you want one, not because you think you are required to buy one (you aren’t),” said Jay Zigmont, PhD, MBA, CFP, founder of Childfree Wealth.
In addition to knowing this is what you want now, you should also be certain this is what you want for the long haul. “Know you are going to stay in that house for 5-7 years (or more),” Zigmont said. “If there is any chance you are going to move before 5 years, renting may be a better option.”
Your Job and Life Are Stable
In between jobs or worried AI is about to bulldoze your career? Going through a divorce or relying on roommates who may be flaky? You may want to reconsider this significant life change.
“If you are in a state of flux, for any reason, it may not be the right time to buy a house,” Zigmont said.
You Have Paid Off Your Consumer Debt
Some debt (namely credit card debt) is more toxic than other types of debt. Be sure you’ve conquered this beast before buying a home.
“Taking on a mortgage while fighting credit card debt can be a recipe for disaster,” Zigmont said.
You Have a Credit Score of at Least 620
It’s doubtful that lenders will have much faith in giving you a decent mortgage rate if your credit score is in the gutter.
“Aim for a credit score of 620 or higher for conventional loans, as this typically qualifies you for better mortgage terms,” said Andrew Latham, CFP and managing editor at SuperMoney.
Mind you, the higher your credit score, the better your odds at landing a competitive mortgage rate. This is another key reason to pay down your credit card debt first.
You Have a Manageable Debt-to-Income Ratio
“Your debt-to-income ratio should ideally be below 36%, with no more than 28% of that going towards the mortgage,” Latham said.
You Can Manage a Sufficient Down Payment
Latham emphasizes the importance of making a down payment of at least 20% of the home’s purchase price to avoid private mortgage insurance (PMI) and secure favorable loan terms. However, lacking here isn’t necessarily a deal-breaker. It depends on your comfort level and financial situation.
“There are other ways to avoid paying PMI,” Latham said. “Sometimes, it makes sense to pay the PMI, if the price of the home and the interest rates of the mortgage make sense for your budget.”
You Have a Comfortable Emergency Savings Fund
Never go into buying a home (or anything you don’t absolutely need, for that matter) if you don’t have an appropriately ample nest egg for emergencies.
“Build an emergency fund covering 3-6 months of living expenses, ensuring financial security after purchasing your home,” Latham said.
You’re Prepared for Additional Homeownership Costs
When you buy a home, you’re not just buying the home — you’re committing to a boatload of other expenses.
“Be prepared for additional costs like property taxes, homeowners insurance and maintenance, which can add 2-4% annually to your home’s value,” Latham said.
You’re Ready To Shop for a Home You Can Actually Afford
Sure, we all fantasize about having spare bedrooms, an ADU and a gorgeous outdoor space. But it’s critical to be realistic and have a goal to only buy a house you can truly afford.
“Your goal should be for your mortgage payment (including principle, interest and taxes) to be less than 1/3rd of your take home pay,” Zigmont said. “Mortgage brokers will approve you for more, but you want to prevent becoming house poor.”
More From GOBankingRates
