With mortgage interest rates at an all-time low, many people — mainly first-time homebuyers — are asking whether this is the right moment to stop renting and buy. When comparing the two options, the decision to buy will ultimately depend on a range of factors like your finances and future plans. Read below to find out if buying a home is right for you.
If, on the other hand, you’ve already decided that you want to buy a home, our best mortgage lenders page can help you find and compare the best lenders. You can also use our mortgage calculator to estimate how much you can expect to pay for a new home based on your credit rating, down payment and loan type.
8 Signs You’re Ready to Stop Renting
1. You’re out of debt
Being out of debt means you are more capable of taking on the weight of a home loan. You don’t need to be totally debt-free, though. Between student, auto, and medical debt, mortgage companies are aware that being debt-free is unrealistic for most borrowers.
You should be able to buy a home so long as your accumulated debt is lower than your income. This is where your debt-to-income ratio (DTI) comes in. DTI shows how much of your monthly income is being used to pay off debts: the lower your ratio, the more likely you’ll be able to afford a mortgage.
To calculate your debt-to-income ratio, divide your current monthly income by your monthly debts (student loans, credit cards, auto loan) or use Money’s handy debt-to-income calculator.
2. You have the down payment
If you’ve saved enough to afford a sizable down payment, you’re on the right track for homeownership. Twenty percent (20%) should be your goal, but you don’t need to provide that big a down payment — conventional loans accept down payments of as low as 5% and you can get an FHA loan with a 3.5% down payment.
You may not need a down payment at all if you qualify for specific government-backed loans. Neither USDA loans nor VA loans require a down payment, but you must meet specific criteria to qualify. Take a look at our best VA loans page if you’re interested in this type of mortgage.
3. You have an emergency fund saved up
You should consider purchasing a home if you have an emergency fund saved up. Experts recommend having three to six months’ worth of expenses saved in addition to the down payment and closing costs. Having an emergency fund shows that you are financially prepared to shoulder any unforeseen expenses and household costs that surface after having bought your home.
4. You have good credit
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