Buying a home is the best decision you can make. It’s also one of the best investment you will probably ever make. It feels good to be a homeowner, but it’s not a walk in the park. You need to be prepared both financial and mentally since the experience is quite different as when you were renting. To tell whether you can buy your first home is the trickiest thing for many renters. There are many people out there with a huge potential for buying a home don’t realise it. What you need is to look at a number of factors before making a move. This handy guide shares 5 key signs to help you know when you are ready to buy your first home.
Here are 5 signs you are ready to buy your first home:
#1 – You Have Steady Positive Cash Flow
Having a steady positive cash flow means that you are getting more income than what you are spending on your everyday expenses and debts payment. The excess income can be used for the purchase of a new home. If you have such idle money, then it means that your debt-to-income ratio, which is one of the scales or ratios used by the lenders, is quite attractive considering that ratio takes into account the total monthly debt and divide them by the gross incomes. Therefore, with good positive cash flow, any lender will be willing to advance a home loan to you.
However, the positive cash flow must be consistent. So your income sources’ steadiness is crucial. It is also important to check your future monthly debts. If you are planning to get married or have kids that will start going to school, then such dynamics are likely to affect your debt-to-income ratio. So if your positive cash flow is solid- you can still maintain paying off debts and still have money lying idle in the account, then you definitely qualify to buy your first home.
#2 – If You Have Down Payment Saved Up
One of the biggest challenges that make it impossible for people to buy homes is the deposit or down payment. For an average Aussie who wants to buy their first home, they need to save a 20% deposit of the actual value of the house. However, for the buyers who can pay the extra cost of Lender Mortgage Insurance (LMI), the deposit can reduce up to 5%. For instance, if you want to buy a house worth $500,000, you need to save a deposit 20% of the amount which is about $100,000 or 5% which is around $25,000.
If you can raise this amount and prove that it is a genuine saving, then you can get a mortgage to buy your first home. However, it is important to ensure that the saving is not part of your retirement scheme because that would make things difficult at your old age if things don’t go as planned. The deposit saving should be from a dedicated saving account.
#3 – You have Job Security/ Steady Income
Having job security or a steady stream of income is another factor that a lender looks at in mortgage applications. Job security is about the predictability of income. For instance, anyone working for the government has guaranteed job security probably till their retirement. It is very rare for government employees to lose their job. That is not the same with companies, which are likely to fold anytime. But if you are working for a reputable company, a contract that guarantees job security can also be considered. That will guarantee the flow of income to repay the loan. If you are a businessman, you can also get access to the mortgage if you have a steady flow of income from your business ventures.
Therefore, if the income from any of these sources is steady, then you are a candidate for buying a home. It’s an indication that you are financially stable and you can service the loan with ease. However, the period that the security of your job is guaranteed will be a crucial factor to the lender.
#4 – Ready to Commit to Additional Expenses
Buying a house is just one thing, but many other expenses come along with being a homeowner. There are additional expenses that come along with it. When renting, the landlord takes care of all expenses including broken windows and other repairs. But when you buy a home, you will be responsible for everything. You will be paying all the bills from your pocket.
It is also important to note that you will need to pay the insurance for the house. So besides the monthly mortgage payment, you need to take into account these additional expenses. If you can commit to these expenses, then you definitely qualify to buy your first home.
#5 – You Have A Good Credit Rating
When you apply for a mortgage loan or a home loan, among the key things your mortgage provider will look at is your creditworthiness. That’s why a good credit rating is an essential factor. No lender will risk committing their money to someone who has a bad reputation with loans. One of the key factors that contribute to credit rating is how you have been paying the previous loan. If you have a good credit history for all the loans that you have applied, whether paid or in the process of paying, then any mortgage lender will be willing to finance the purchase of the home.
So if you still renting, these are 5 signs you are ready to buy your first home. If you have extra cash after paying your monthly debts, a stable job, and a good credit rating, then you are definitely a candidate for buying a home. However, you must also be ready to commit to the additional expenses that come along with being a homeowner. The bottom line is that you are you are ready to buy your first home if you are financially stable.