Things to Consider Before Shopping for a Mortgage
Buying a house is a big step, one that many adults look forward to. While owning a home comes with several benefits, it's also a costly endeavor that shouldn't be rushed into.
Taking the plunge before you're ready could mean you end up being stretched financially. So how do you know when the time is right to buy your first home? Here's a quick checklist that can help you determine if you're ready to shop for a mortgage!
1. You Have Stable Income
Buying a house is a big monetary commitment, one that requires you to stay on top of monthly installments regardless of how many other expenses you have.
That being said, it's best to have regular employment that provides a steady stream of dependable income. While freelance work typically provides a more flexible schedule, work can be sporadic and payments can be in varying amounts.
When it comes to buying a home, you'll need to know exactly how much money you have coming in each month. Otherwise, you'll never know if you will have enough to cover all of your expenses. To get a handle on your incoming and outgoing money, organize your finances. By listing out all of your monthly expenses, you can see where your money is going, and if you're spending excessive amounts in an area that you can cut back on.
While it could be tempting to start the home-buying process right after you've secured a new job that offers a significant salary bump, it's best to get past your probationary period and ensure the job is a good fit for both you and your employer.
2. You Have a High Credit Score
Good credit isn't built in a day. It takes years of smart financial moves to build and maintain a high credit score. But the rewards for all the work you put into achieving a high score are well worth it, especially when it comes time to shop for a mortgage.
Those with high credit scores are more appealing to lenders, as a high score indicates good money management skills. Borrowers are rewarded for their high credit rating with low interest rates. A low rate means you could save thousands over the life of your mortgage when compared to someone who let their credit score slip over the years.
In the few months leading up to your search for a home, don't do anything that could impact your credit standing, like opening several new credit cards or making large purchases. Multiple hard credit pulls could cause a drop in your rating, which may mean you miss out on a competitive interest rate.
Is your credit score strong and you're wondering if now is the time to buy? See what obligation-free rates you qualify for!
3. You Have Saved
Emergency funds, down payment, savings . . . all different accounts that you've contributed to over the years. Other than having steady income and a high credit score, having dedicated accounts that you can use for financial emergencies are great indicators that you're ready to purchase your first home.
Because financial hardships can and do happen, an emergency fund eliminates the need to take money out of a savings account. Plus, when you have money earmarked for a down payment, you can leave both your emergency fund and your savings intact.
While it's suggested that families have a years' worth of living expenses set aside in an emergency fund, that isn't always realistic. Instead, aim for six months worth, while also contributing to your savings and down payment fund. Once you reach your down payment goal, you can then start to contribute more to your emergency fund.
Should there ever come a time when you need a significant amount of cash, knowing you have access to earmarked funds can go a long way in your overall wellbeing. If you have a healthy savings account, know your budget - and have set aside a percentage of that budget for a down payment - and have a growing emergency fund, it's time to think about buying.
4. You Have a 5-Year Plan
Becoming a homeowner is an exciting prospect. So exciting, in fact, that many often fail to think about their long-term goals, or even what the near future holds.
Hold off on purchasing a home until you know what your next five years look like. While not every detail of your life needs to be planned out, you should be able to answer a few bigger questions, like:
- Are you considering a new career?
- Are you planning on starting a family soon?
- Can you see yourself staying in the area for a significant amount of time?
- How long do you think you'll want to stay in your first home?
As the answers to those questions could reveal that it may not be the ideal time to purchase a home, or they could indicate what type of mortgage is best suited to your current needs and long-term goals.
5. You've Done Your Research
Researching areas, researching the features you'd like to have in a house, researching real estate agents, researching lenders...most of the home-buying process comes down to researching and comparing options.
While Lendgo can't assist with the entire buying process, it makes it easy to find reputable lenders who are eager to work with you. Many times, borrowers who use Lendgo to compare mortgage lenders go on to negotiate even more competitive terms for themselves, thanks to pitting lenders against each other. Take a look at the mortgage terms you qualify for!
See What Rates Are Out There
If you have reliable income, money saved, a high credit score, know what your next few years will look like, and have researched all important aspects, it's time to look into mortgage preapproval.
Now is a great time to buy, considering the fact that rates are at historic lows! What's the best way to ensure you're getting competitive rates? Comparing lenders via Lendgo, a free platform that aims to help future homeowners like you secure low rates, flexible terms, and the perfect house.