When should I buy a house?

If the question “When should I buy a house?” is bouncing around in your mind, you’re probably already aware that there’s no cut-and-dried answer to this. There are many variables involved in deciding whether it’s time to buy a house, but taking a hard look at your finances and expectations is an excellent way to lead you to a definitive answer.

If you have the feeling that you might want to buy a house but you’re unsure whether you’re truly ready, consider the following factors to help you decide.

Check your credit

Review a copy of your credit report before you even apply for a mortgage loan. You want to make sure there aren’t any errors or other information that might drag your credit score down, possibly resulting in a higher interest rate or loan denial.

Fix anything that’s not right and bring anything that’s delinquent into a current status. If your credit’s pretty damaged, you might want to wait a while to allow your corrections and fixes to catch up with your score.

A low credit score or delinquent credit accounts might mean you’re not quite ready to take the leap into home ownership, not only because you may not be able to get approved for a mortgage, but also because homeownership can come with sudden expenses that you have to be ready for. If you’re already struggling financially, homeownership might make things tougher on you.

Down payment

Some money is going to have to come out of your pocket when you buy your home. Even “no money down” mortgages come with some initial financial investment, so you’ll need to figure out if you’re financially prepared to write a check for an earnest deposit or to pay for an inspection on a home.

While you may not need to make a substantial down payment to get approved for a mortgage loan, there are some good reasons for doing so:

  • The bigger your down payment, the less you have to finance
  • If you put enough down (typically 20% or more), you’ll avoid private mortgage insurance (PMI) in a traditional loan
  • You may be able to get a better interest rate with a higher down payment

Keep in mind that some loans, such as VA loans and FHA loans, also feature funding fees. These fees are based on a percentage of the amount financed, and while they can sometimes be financed right along with the rest of the mortgage, it’s an extra expense of which you should be aware.

Money reserves

Beyond the down payment, you should have some money stashed away in case of emergency. You never know when your water heater will stop working or your air conditioner will break down. It’s best to be financially prepared for anything life may throw at you.

You also want to make sure you have an emergency fund in case you experience a sudden drop in income or a substantial expense you didn’t anticipate. Aim for an emergency fund that equals around 3 to 6 months’ worth of expenses, including your mortgage payment.

Financial readiness

You have the money for the down payment and you have a decent emergency fund in place. Good work! This doesn’t necessarily guarantee that you’re ready to make the leap into homeownership, though.

Consider your budget. You don’t want your monthly mortgage payment to be a tight squeeze. Estimate what your monthly payment will be, taking into consideration PITI: principal, interest, taxes, and insurance.

Your entire financial picture should be in tip-top shape before you buy a house. Pay down your debt as much as possible and get into the habit of living below your means. The healthier your finances are, the better poised you are to purchase a home.

Have you been through the homebuying process? Share your advice for first-timers in the comments.

Ready to turn the question of “Should I buy a house?” into “How do I get started?” Check out Cobalt CU’s First Time Homebuying Checklist.