So you’ve been doing the renting, living-with-the-parents, or couch surfing thing for a while now and are ready to own your own space. To know if you’re on the right path to homeownership, here are some things to consider:
1. Do you have a steady and regular income?
Mortgage loan approvals require a steady and regular income. Is your employment situation secure enough that you can commit to homeownership?
2. Do you have a credit history?
Lenders will assess your monthly debt obligations and repayment history to determine your credit worthiness. In general, lenders like to see two tradeline credit sources (or two accounts) for at least two years.
3. Do you have a budget?
One of the best ways to know what you can afford is to get a pre-approval. A pre-approval will tell you what loan amount you’re approved for and will demonstrate to sellers that you’re a serious buyer.
4. Do you have enough money for a dоwn payment?
Most sellers ask for a down payment of 20% of the purchase price of the home. While it is possible to put in a smaller down payment, this may affect your rates or result in having to purchase private mortgage insurance (PMI), which protects the lender in case you default on your mortgage. Do you have enough cash on hand to cover the down payment, or do you know someone who would be willing to gift you part of the down payment? Or are you using a mortgage program (like VA or USDA) that doesn’t require a down payment?
Think you’re ready? Before you start shopping for houses, get pre-approved.