Ready or Not?
Home ownership is likely both the largest asset and debt most people will take on in their lifetimes, so it is not a commitment to be entered into lightly. While buying your first home is thrilling, your excitement should not be overshadowed by the responsibility that comes with owning versus renting. If you’re not sure if you’re ready to buy or not, here are 5 signs that should help you to make the right decision.
1) You have a reliable income source
If you plan on getting a mortgage, living paycheque to paycheque is not conducive with owing a home and having a mortgage. Unexpected costs come along all the time with home ownership and that could break the bank if you’re on a tight budget. Before being approved for a mortgage your lender will be confirming you have a continuing reliable income source in order to support the interest, payments and property taxes for the new home in addition to any other debt obligations you may have. Even if you are self-employed and take minimal income from the business, you will still be asked to demonstrate you have a steady source of income that can support all of your payments.
2) You have access to a downpayment, and more
Not only do you need to have a minimum 5% downpayment to purchase a home, you also need to show you have access to additional funds to cover the closing costs. These would include legal fees and any property tax adjustments along with other miscellaneous moving expenses. Basically, the lender is looking to see you have enough funds on hand so you won’t be short on closing date and it also looks good to the lender when you have additional savings on deposit. The lenders will ensure you’re in healthy cash to debt range, especially if you’re trying to qualify to buy your first home and the stronger you are, the better for qualifying.
3) You’re not drowning in debt
Your non-mortgage debt levels are an important factor in determining the maximum mortgage amount you qualify for. The more debt you have, the less mortgage you can qualify for. Some lenders look at it like you’ve maxed out all of your available credit limits while others are looking at minimum payments on only what you owe when you apply. Determine which method your potential lender prefers before applying as you may have to change lenders in order to qualify though reducing your debt levels before applying for a mortgage would be a good thing to do.
4) You’ve crunched the numbers
While you can usually depend on your mortgage professional to provide you with the information you need to make an informed decision, they can’t make the choice for you. It is still up to you to determine which mortgage and property option fit your lifestyle. Be prepared for a mortgage payment, condo fees if applicable, property taxes, property maintenance and repair costs, house insurance and more. Be sure you’ve done your research before you apply for a mortgage pre-approval.
5) You don’t need a co-signer
A co-signer is brought on if additional application strength is required before a lender will grant you a mortgage approval. If you’re in the position where you require a co-signer, you may also be in the position to rent for a bit longer. Depending on why you need a co-signer, it might be a better idea to delay home ownership until you can qualify on your own. Though, if you don’t want to put off buying any longer, at least have an exit strategy to eventually get your co-signer off the mortgage so you can make decisions about your home without the signed consent of your co-signer.
If you’re still undecided about home ownership, it may be best to wait until you’re absolutely sure. Don’t be afraid to explore all your options before you commit to one as buying your first home can be quite stressful. Again, be confident about your choices by doing your research before you sign on the dotted line.