When Is a Good Time to Buy a House?
Buying a house is an exciting time. However, some buyers rush into the process without fully preparing themselves. There is a wrong and a right time to purchase a home. Before speaking with a lender, it helps to review your circumstances to determine if now's the best time to buy a home.
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When You Have a High Credit Score
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Mortgage lenders do not require perfect credit scores. However, the higher your FICO credit rating, the better your interest rate on a mortgage loan. You can likely qualify for a mortgage with a score around 650. In fact, FHA home loans only require a score of 620. But even if you qualify for a mortgage, you won't receive the best interest rate on the home loan. Higher rates increase monthly payments, and if you can't afford a higher payment, you'll have to select a cheaper home or postpone buying. Scores 680 and above qualify for the most competitive rates on mortgages.
When You Have A Handle on Your Debt
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Another factor affecting mortgage rates and approvals is consumer debt. If you have high credit card balances, it can stop a mortgage application or result in a higher interest rate. Mortgage lenders use a housing ratio to determine if someone can afford a home loan. And according to their ratio, a borrower's monthly debt payments (which includes the mortgage) should not exceed 36 percent of her monthly income. A car loan or excessive credit card payments can put borrowers over this limit. Waiting until debts are paid off or paid down helps borrowers qualify for a low-rate mortgage.
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When You've Got a Stable Job
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You may be tempted to apply for a mortgage loan after acquiring your first job. Unfortunately, getting a mortgage loan while fresh on the job can prove challenging, if not impossible. According to the Home Loan Learning Center, mortgage lenders look at your employment history, and they require 24 months of consecutive employment.
When You Have Saved Adequately
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Being broke is definitely not the time to buy a home. Even if you can afford the mortgage payment on a new property, lack of cash in savings can postpone the mortgage process because buying a home requires upfront cash. Lenders charge an application fee, home appraisal fee and there's the fee for an inspection. Plus, you'll need a minimum of 5 percent to put down on your new property. This is in addition to closing costs, which can costs up to 5 percent of the loan balance.
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