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8 Signs it is the Right Time to Buy a Home

8 Signs it is the Right Time to Buy a Home

Deciding to buy a home can be one of the most exciting decisions that you will ever make. By becoming a homeowner, you will not only be able to enjoy the financial benefits of property ownership—including increased equity, tax benefits, and more — you’ll also be able to have the joy of creating a unique space you can be proud to call your own.

Many people have witnessed the housing market rally over the course of 2020 and 2021 and have thought to themselves, is now the right time to finally make the leap? Am I ready to become a homeowner?

As you’d probably expect, the answer to these commonly asked questions is it depends. Whether or not it is the right time to buy will depend on much more than the general state of the market; it will also depend on your current financial situation, as well as your long-term dreams and goals. As your first option Indianapolis home mortgage lender, we’ll do our best to help answer these questions.

So, is it the right time?

Of course, there is no universal answer to whether or not now is the right time to buy. However, there are a few things you should keep in mind. Here are some of the most common signs that it is the right time to buy a home:

1. You’ve Paid Down a Lot of Your Debt

One of the main variables that lenders will look at is your debt-to-income ratio. Even if you have a stable income, lenders will want to ensure that a large portion of your income—usually at least two-thirds—can be used to pay for things other than your debt. If you have significant student loans, car loans, or other types of debt, it might make sense to wait a little bit before committing to a mortgage.

2. Your Credit Score Has Recently Improved

We’ll be honest, in order to buy a home—and to also get a reasonable interest rate—you are going to need a good credit score, ideally 720 or higher. If your score is below 700, you might be able to qualify for a mortgage, but this can cost you significant amounts of money over time (as in, potentially tens of thousands of dollars). Because of this, you should wait until your credit score is high enough for you to secure a decent interest rate.

3. You’re Able to Pay the Down Payment

Though it is no longer necessary to make a 20 percent down payment, most lenders still require about a five percent down payment, unless you qualify for a special loan (such as those supported by the FHA or VA). Being able to make the down payment will be a crucial part of the closing process—if you’re unable to produce the necessary funds on closing day, the entire deal might fall through. Be sure to take a little bit of time to save.

4. …And You Still Have Some Savings

Even if you are confident that you can make the necessary down payment, the last thing you’ll want to do is move into your house and immediately be “house poor”—as in, you have some equity, but it’s all tied up in your home. While you could probably get away with having a little bit less saved up (as the writer of this article definitely once did), it is generally a good rule of thumb to have at least two months of expenses set aside.

5. You Have Stable Income

When underwriting a mortgage, lenders will consider your current equity situation (how much you own), but your income situation might be even more important. Having a stable income will not only make the home buying process easier but will also help you secure better terms for your loan.

6. You Are Moving into a New Stage of Life

Life, undoubtedly, occurs in stages. Moving to a new city, getting married, having a baby, retiring, and other important life developments are all reasons you might want to consider becoming a homeowner. Just make sure you are also financially prepared to do so.

7. You’re Ready to Begin Building Equity

One of the most frustrating things about living in an apartment is having to say goodbye to your hard-earned money every single month. By investing in property, you will be able to keep at least a portion of your monthly mortgage payments and steadily build equity over time. Though there are many more expenses and responsibilities that come with ownership, being able to increase your wealth is undoubtedly an excellent perk.

8. You Are Able to Make a Long-Term Commitment

If you buy a home and immediately decide to move, you will typically end up losing quite a bit of money (in addition to having to deal with all the stress that comes with buying a home). Though you don’t need to commit to living there the entire length of the mortgage (typically 15 or 30 years), it only really makes sense to buy a home if you are able to stay there for at least a couple of years.

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