How to know if you are ready to buy a home

By Sam Schipani, Bangor Daily News Staff

The idea of purchasing a home is alluring. It means that the money you spent on living expenses is going to something you own instead of a landlord. It can also mean building equity and stability in your life. However, homebuying isn’t just about the money.

In fact, the wrong house purchased at the wrong time can become a tremendous burden.

Here are some things you need to consider to determine whether you are ready to buy a home.

Think about your lifestyle

To determine if you are ready to buy a house, the first thing you will want to consider is whether home ownership and the work that it entails fits your current lifestyle.

Abby Morton, planning director at Gather Financial Planning in Falmouth, said if you are getting a house simply for the investment or because interest rates are low, it may not be the best move.

“If you look closely enough houses and real estate that people own tends to just keep up with inflation but doesn’t tend to be as good an investment as a diversified portfolio over time,” Morton said. 

If you love traveling every weekend, for example, it may be a rude awakening when you need to stay home to mow the lawn or take care of routine maintenance around the house.

Similarly, if you have a job that requires you to move a lot, you may want to wait until your career is more settled. Morton recommended buying a home only if you plan on being in your current location for five years or more.

“From a mortgage lending standpoint what we look at is job stability,” said Shannon Odom, a mortgage lender in Bangor. “If you don’t have stable income sources, then it’s going to be very difficult to get a mortgage loan today. Typically they want to see a two-year history — not necessarily two years at the same job, but a two-year history.”

Your own personal readiness to be responsible for the care and maintenance of your own property will also come into play.

“Emotional readiness comes simply by wanting to be king or queen of your own castle and take on the responsibility of maintaining a property,” said Susan Lane, a broker with Realty of Maine in Bangor. “Many first-time buyers miss out buying because they fear mortgages but the longer a buyer delays, it can make getting on the first rung more challenging.”

Look at your debt

You need to consider whether it makes sense for you to buy a home given your debt, from credit card debt to student loans. Consider the monthly payments that you are making on all of your outstanding debt.

“You need to know things like how much money is going out every month [and] you need to know where it’s going,” said Allison Bishop, a financial coach in Portland.

Your debt will also influence what loans you will qualify for, if you qualify for one at all. Just because you have debt, though, doesn’t mean you can’t buy a house. One of the most important considerations for lenders is your debt-to-income ratio.

“Somebody that’s making $100,000 a year versus someone that’s making $50,000, the amount of debt they can hold is very different,” Odom said. “We don’t look at the total balance of debt. We look at the monthly payments — that’s more important. Each loan program has their own set guidelines for where they want your debt to income ratio to line up. It’s a complex puzzle that we put together.”

Bishop said that she will advise her clients to look at their debts individually and see what the interest rate is, as well as any recent debts they have accrued. If you have a lot of high interest credit card debt, you may not be ready to buy a house.

“Certainly if you were incurring new credit card debt on a monthly basis that is a sign that you should not buy a house because you’re not living within your means at the moment,” Bishop said.

Consider your credit

Like debt, your credit is going to be an important factor when it comes to getting a home loan. 

“It’s a great idea to check your scores on True Credit or Credit Karma just to make sure if you have any errors, any discrepancies, any fraud [or] any major red flags,” said Dolly Perkins, broker at Realty of Maine in Dover-Foxcroft. “Most of these credit reporting agencies will tell you what does not look good on your report and you can address those issues.” 

Odom said that, generally, the minimum credit score for someone looking for a house should be around 640, though certain lenders will go lower depending on your qualifications. You may have to do some work on your credit before you are ready to buy a house.

“More often than not, if a loan is denied it’s due to credit,” Odom said. “My advice when it comes to credit is everybody needs to have some sort of tradelines that are reporting to credit — auto loan, personal loan, student loan, credit card — ideally two or three acounts reporting credit is advisable.”

Count your savings

Another financial consideration is to look at your savings. Ideally, you should have some money for a down payment, or the upfront payment toward the house costs. The conventional wisdom is to put down 20 percent of the home’s cost, but many loans will require a smaller amount. Some loans do not require a down payment at all.

“it depends on what type of mortgage a buyer qualifies for,” Lane said. “Low income rural development requires zero down payment, but hefty closing cost fees from the seller.”

Even if you aren’t making a sizable down payment, though, you should have some money saved for moving expenses and emergencies.

“A good rule of thumb is to have a good three to six months of savings in your account in case something happens — in case you have a temporary lay off, in case your furnace goes out, in case your water heater stops working,” Perkins said. “You must expect the unexpected.”

Have some skills (or know who to call)

When you own a home, you are assuming the maintenance responsibilities that a landlord would normally take care of if you were renting. Having some basic maintenance skills is an important element of home ownership — especially since it will add to the cost if you have to hire someone every time something simple needs doing..

“Simple things like location of water valves, electrical panel shut off, furnace shut off should all be known,” Lane said. “Painting, removing old wallpaper, installing wood floors, plumbing – if a homeowner has the skills to do it correctly, the return on investment is far higher.”

The biggest skill you can have is knowing how to properly clean all of the elements of your house, from your tub and your gutters to all the filters on your appliances. Also, you should be able to tell if your sink and roof are leaking, know to make sure the paint is touched up so the wood doesn’t rot and keep an eye out for any other regular maintenance issues that may occur.

Perkins also said to figure out what maintenance is required for your type of home. Does it require yard maintenance? Does your home have a pool? Does it have a septic system? Do you know how to service a furnace, or change water filters? 

“Learning how to clean properly is probably the biggest thing,” Perkins said. “Clutter is dangerous. It devalues property. Paying attention and not letting [maintenance] get away from you is the biggest thing you can do.”