There comes a time in most renters' lives when they get the itch to have more control over their future. You might want more space, the ability to renovate in a way that matches your style, or maybe you want to start building wealth by becoming a homeowner.
These are all great reasons to start thinking about buying a home—but your wants also need to align with your finances. When your desires, income, and debt are all in good order, it might be time to start house hunting.
Here are some financial health factors that can help determine whether you're ready to make the transition from renter to homeowner.
Your credit is good
You're most likely to get a mortgage loan with good terms if your credit score is above 600. That doesn't mean you can't get a mortgage if your score is lower, but your interest might be higher or other terms of your loan might be less favorable.
Lenders like to see that you have a history of good credit. That means some credit that you've paid on time is better than no credit. If you've had trouble with credit in the past (or don't have a credit history), take steps as soon as possible to improve and protect your credit going forward.
Your debt is under control
It's next to impossible to have zero debt. But you should shoot for a debt-to-income (DTI) ratio—which is one of the most important factors when applying for a loan—of 43% or lower. That means your debt makes up 43% of your income, and it might be time to consider a transition from renting to buying a home.
Some mortgage lenders might work with you at a 45% DTI, and 50% is considered the maximum in most cases.
Read more about how you can pay down your debt and improve your DTI.
You have ample savings
The largest amount you need to save for will likely be your down payment (typically 20% of the purchase prices but it can be less). But you should also have enough money saved for closing costs as well as money for any maintenance the home might need before you move in and in the future.
Buying a home can also come with unforeseen expenses, so it's a good idea to prepare for the costs of owning a home by putting money into an emergency fund that you can draw from for plumbing issues, flooding, fire, or other unexpected events.
Your employment is stable
Lenders will want to see a solid employment history so they can feel confident that you'll make payments on time. If you've had the same job for two years or more with the same salary (or one that has increased), you might be ready to transition from renter to buyer. With two years of solid employment history, lenders are more likely to see you as financially secure and a reliable borrower.
You can check off all of these items and you're ready to take more control of your future, it may be a great time to start your home-buying journey.
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