3 Signs You Are NOT Ready To Buy A Home
Mortgage Banker
Richard Blair
Published on March 25, 2021

3 Signs You Are NOT Ready To Buy A Home

The dream of buying and owning your own home is something you think about every day. In fact, you have been looking at homes listed for sale on the internet and maybe even attended a couple of open houses on the weekend. There is a difference between being “mentally” ready to buy a home and financially ready. Buying a home in today’s market requires being educated about loan options, putting your finances in order, planning and developing a strategy with a trusted mortgage loan originator at least 3 months prior to starting your home buying journey. Planning in advance can make all the difference between achieving the dream of home ownership and being disappointed. Here are 3 telltale signs your are NOT ready to buy a home:

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  1. Not Managing Your Debt and Spending:  If you are literally drowning in credit card debt it is a sign that you are not managing your consumer debt properly. Even if you are making minimum payments on your credit card debt timely, the amount of debt may result in lower credit scores. Credit scores play a very big part of which loan programs you may qualify and the amount of money you will need to save for down payment. Have a mortgage loan originator pull a credit report so you can find out your current credit score as well as what steps can be taken now to increase your score. Review your credit card spending and make a budget to reduce your spending in advance of buying a home. Are you willing to make sacrifices in spending to own a home? You may be surprised how much money is spent on coffee, restaurants, fast-food, and other non-essential items each month. How much of your budget is being taken up from these purchases each month? Pre-qualifying for your home mortgage also relies on your debt-to-income. Take a close look at what percentage of your income each month goes to paying debt like credit cards, car loan, or student loans. Through planning you may be able to change student loan programs to reduce the amount of monthly debt and help you pre-qualify for your mortgage. Remember that bankruptcy also affects your ability to pre-qualify because certain time periods are required after a discharge depending upon the loan program. For example, conventional loans you would need 4 years after a bankruptcy discharge before you could apply for a home mortgage.
  2. Not Enough Money Saved For Down Payment /Closing Costs: If you are serious about starting the home buying journey you should have saved money for down payment and closing costs. This requires planning and budgeting to start a saving plan with a realistic goal. That is why it is so important at the start of your home search to reach out to a mortgage loan originator, mortgage banker or mortgage broker to give you a realistic picture of how much house you can afford and how much down payment you will need. Remember a 20% down payment is not a requirement. In fact, there are many loan programs available with different down payment options. The FHA loan has a 3.5% down payment, conventional loans allow for 5% down payment and down to 3% in certain circumstances. For veterans and active military the VA loan is a true zero down payment.
  3. Employment History –   Being on the same job for the past years shows great job and income stability, which mortgage lenders love to see. The more stable your job and income the more likely you will be able to pay your home mortgage. Even if it is not the same employer, the mortgage lender will look at your job and earning history for the past 24 months. If you are changing jobs frequently, like 3 times in the past 12 months, it could signal an issue in pre-qualifying for a mortgage because your income is not considered stable. If you did change job within the past two years the length of time between jobs is important. Having a large gap of time between employers is not considered a good sign for income stability. If you are considering buying a home think very carefully before changing jobs or professions because it can affect your ability to pre-qualify. For example, moving from a salary or hourly job to a commission -based pay position adds uncertainty to your income. You would typically need to average two years of commission income to qualify. If you are considering self-employment remember that the mortgage lender will usually require you to have operated your business for 2 years and to provide tax returns for those years. Planning in advance of any major job change is crucial and be sure to discuss your employment plans with your mortgage loan originator for guidance.

 

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