Buying a home is an important moment in one's life. It marks the beginning of a new chapter, which for many people involves getting married and starting a family. While taking this step can be a joyous milestone, the process of paying off a mortgage can cause stress among homeowners. In fact, according to a recent study by NerdWallet, 25% of Americans feel financially insecure after purchasing a home.
In other words, don't rush into getting a mortgage, even if you have enough money for a down payment. Instead, effectively plan for the future and assess your options. Most importantly, understand your financial situation and make sure you're prepared for the unexpected.
Want to know if now is the right time for you? If these five statements ring true, then you're most likely in a good position to purchase your first home:
If you have a job that moves you around a lot, you may be better off renting for the time being. But as someone who's set in their career, with no intention of leaving, owning a house is a great option. You'll be able to establish roots, be a part of a community and enroll your kids in a single school system, all while gradually paying off your mortgage.
Before approving loans, banks and mortgage companies take a hard look at applicants' credit scores. The lower your score is, the more of a risk you are in the eyes of the lender. So, if you've been skipping credit card payments and causing your FICO score to suffer, then you might not get approved for the loan. If you do end up getting approved, you could get stuck with a larger down payment and/or higher interest rates.
Are you still paying off your student loans? Do you have a loan on your car? If so, make sure you don't have any outstanding payments. The lender will want to know how much you still owe on your existing loans, as well as how trustworthy you are when it comes to making payments on time. Like having a bad FICO score, being behind on other loans can result in higher monthly payments in your mortgage agreement.
Having a good job is an important part of getting approved for a mortgage. Earning consistent paychecks shows the lender that you're financially stable and will continue to be throughout the life of the loan. If there's any chance that you might get laid off or want to switch careers in the near future, don't take the risk of putting yourself into debt.
What if you lose your job or get stuck with a hefty medical bill? Sudden income reduction and unexpected expenses can make it harder to continue paying off a mortgage, which can lead to serious consequences, like foreclosure. This is why all homeowners should have a financial safety net before buying a home. You never know what's going to happen in life, so you should always have a good amount of money saved up (preferably a full year of monthly payments) just in case.
If possible, try to purchase your home at a time when interest rates are low. Lower interest rates set by the Federal Reserve allow banks and mortgage companies to charge lower rates, which means smaller monthly loan payments for you, the borrower. The Fed meets eight times a year to determine if it should increase, lower or keep interest rates the same. So make sure you're paying attention to their decisions as you get closer to buying a home.
Interested in learning more about buying your first home? We're here to help! Contact The Federal Savings Bank today.