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Home ownership is a lifelong dream that can be a reality with the right preparation. Wondering if you are homebuyer ready? We can help. There are a few important factors that will help you determine if you are ready to start the home buying process.

Estimated years of ownership

Usually, the longer you keep the house, the better the investment. At the minimum, it is best to wait long enough to recoup the closing costs, which average around 2% to 6% of the house price. According to Experian¹, it takes an average of five years of ownership to recoup closing costs and makes selling more financially sound. If you will own the house for five years or longer, it is a good sign that buying a house could be right for you.

Financial Preparation

Being financially prepared is more than making the mortgage payment every month. It includes budgeting all the normal costs of owning and maintaining a home, having enough savings set aside, and being ready for the total cost of purchasing a home.

Budget

A good place to start with financial preparation is to review your current budget. List your income and expenses to discover how much you can afford to pay on a mortgage each month. We have a handy online coach to help you decide if a mortgage payment works with your budget.

There are a few regular costs that come with homeownership that you might not be used to. Water, sewer, utilities, and maintenance should be estimated and added to your monthly budget to ensure you can afford to live in and care for your new house. Each of these bills will vary based on where you choose to live, how much you use, and the time of year. Make sure these are included in your budget, too. Home insurance and property taxes will also be additional regular costs, these are usually included in your monthly mortgage payment.

Remember to include any debts you already have when creating your budget such as student loans, credit card balances, or car loans. If your debts add up to 50% or more of your income, it is a good idea to pay down debt before applying for a mortgage.

Savings

Building your savings makes a huge difference to the cost of buying a house and gives you a good financial safety net for the unexpected. This financial safety net is what we call emergency savings. It enables you to pay your bills with your savings in case of a large unexpected expense or if you no longer have a regular income to rely on. It is recommended to have enough to cover a 3-to-6-month period of expenses.

Two major upfront costs to prepare for when buying a house are the down payment and the closing costs. The downpayment is usually expressed as a percentage of the cost of the house you want to buy. The larger your downpayment, the less your monthly payment is going to cost, and the less interest you will pay over the life of the mortgage. Downpayments usually range from 5% - 20% for regular mortgages, but can be as low as 3.5% with FHA loans. If you do have less than a 20% downpayment, you may be required to get Private Mortgage Insurance which can significantly add to the cost of the mortgage.

Closing costs are usually paid at the end of the buying process and vary depending on the lender. These costs can range from 2% - 6% of the house price. Check out our Learn & Earn program for a closing cost discount. Lenders may allow you to roll some closing costs into the loan, but not all. Also, keep in mind that you will end up paying interest on those closing fees if they are included in your mortgage.

Credit score

It is important to take good care of your credit to get the best possible interest rate on your mortgage. It is recommended to have a credit score of 620 or higher when applying for a mortgage. There are ways to improve your credit like a CreditBuild loan, or paying off your current debt to increase your score and potential savings.

A note about income

When you apply for a mortgage, or any loan, you will be asked to provide proof of income. Lenders will want to see regular income for 2 years or more and enough money to sustain a mortgage in addition to your current expenses.

If you are staying in the area, have your budget ready, your savings are built up, and your credit score is in a good place, then speaking with a mortgage loan officer might be the right next step for you. There is some flexibility when it comes to factors like credit and your required downpayment, so make sure to talk with your mortgage lender to fully understand all your options when purchasing a house. We have a team of mortgage lenders dedicated to helping members save more and achieve their financial goals. See how much our members save on average every year on MembersAlliance mortgages, and view our current rates to find out how much you could save. To learn more about MembersAlliance mortgages or to start your application, see our mortgage page, call 815-226-2260, or visit any of our locations.

¹ Cahill, Emily. “How Long Should You Live in a House Before Selling?” Experian, Jan 14, 2023.

How Long Should You Live in a House Before Selling? - Experian