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Buying your first home can be one of life’s biggest milestones – a slice of the American Dream. So it’s no surprise that there are plenty of articles offering tips on things like how to save or shop for a house.
But how do you know you’re actually ready to buy?
Maybe you’re tired of renting or feel like it’s something you’re “supposed” to do at a certain point in life. Or perhaps, a lot of your friends have already become homeowners and you’re feeling the pressure. Plus, who wouldn’t want a place to call their own (to DIY to your heart’s content)?
But buying a house is a big decision that comes with even bigger responsibilities. So you’ll want to make sure you’re ready for the commitment.
Now, we’re not just talking about checking off some financial boxes (though these are important and we’ll go over them later).
But there are also non-financial considerations you’ll want to think through. Because even if you have enough for a down payment and could afford a house right now, that doesn’t necessarily mean you’re at a place in your life where you’re ready to be a homeowner.
Ahead, we’ll take a look at four signs that you might be ready to make the jump from renting to owning.
This one may seem obvious. If you don’t have a stable income, it’s probably not a good time to buy a house.
Why? Because even if you have the down payment, keep in mind that you’re still on the hook for ongoing costs like mortage payments, property taxes, insurance, home maintenance and more. Having a stable job and income is essential in helping you pay for those recurring costs.
Now, what do we mean by “stable?” After all, no job or income is ever guaranteed.
Start by looking at your employment history. Do you have at least two years of steady income?
Two years is a common measure to consider because if you’re planning to apply for a loan, lenders usually want to see at least two years of tax returns for proof of income. Also, having a stable income could give you a better chance of being approved for a loan (compared to someone with an unstable income).
Let’s say you have enough for a down payment. You could start your home search now, right? Down payment money is a great start, but that alone doesn’t necessarily mean you’re ready to be a homeowner. You’ll also want to take a look at your overall financial picture and make sure key areas are in order like your emergency fund, credit score and debt.
This pot of money can help you pay for unexpected expenses, and when you’re a homeowner, you’ll probably have a few of those. Think about it – when you’re renting and something breaks, you could just call up a super or landlord for repairs.
But when you own your home, you’re responsible for the repairs and maintenance. If you can’t fix something yourself, you’ll have to pay a professional to do it. And depending on what kind of repairs you need, you may have to dip into your emergency fund to cover the costs.
That’s why it’s important to make sure you have money set aside for emergencies. Remember, it’s generally a good idea to save enough to cover at least three to six months of essential expenses.
Having a good credit score is important for many reasons. Your credit score can impact your ability to get a home loan as well as the borrowing terms (think: interest rates, down payment, etc.).
If you’ve been renting for a while, you may not know your credit score off the top of your head. Consider checking in with a credit bureau (like Equifax, Experian or TransUnion) and see where you stand. If your score isn’t where you want it to be, there are steps you could take to help improve it.
You might also want to check out our article on what credit score you need to buy a house.
It’s a misconception you need to be debt-free before even thinking about buying a house. If that was the case, you probably wouldn’t see as many first-time homeowners around. (Many of us carry around some debt, and not all debt is bad!) While you don’t need to be completely free of debt, you should have it under control.
For instance, you’re actively paying it down and doing so on time. One number that helps lenders get a general sense of how much control you have over your debts is your debt-to-income (DTI) ratio.
This is basically the percentage of debt you’re carrying against your income. You can read more about the importance of your DTI ratio here.
Sometimes what you pay in rent might as well be a mortgage payment. It’s possible for those two numbers to be in the same ballpark.
So you might be tempted to think: “Well, if I’m going to pay about the same each month, I might as well pay to own.” (After all, paying a mortgage, instead of rent, could help you build home equity).
Remember though, even if you can afford the mortgage, that’s only one part of homeownership. You’d want to make sure you can cover other essential costs.
Earlier, we mentioned recurring expenses like insurance, homeowner’s association (or condo) fees and property taxes. (Renters don’t usually have to worry about these things.)
There are also home maintenance and renovation expenses to think of too. And we’re not just talking about the small repairs like a leaky faucet or a running toilet, but the big stuff that could put a dent in your savings.
For example, roof, water-heater, HVAC, plumbing and electrical repairs – the list can be long, especially if you’re buying an older house that needs a lot of love.
The point is: All these non-mortgage-related costs can really add up. So ask yourself whether your budget can accommodate them on top of your mortgage payments.
Sometimes, you might need to make certain budget adjustments or trade-offs to make it work (like cutting down spending in other areas). But if you’re not willing to make those trade-offs at this time (or buying a home will eat into other financial goals), then you may not be ready to buy just yet.
Good to know: When it comes to budgeting for home maintenance costs, some experts suggest following the one percent rule. The goal here is to set aside at least one percent of your home’s value each year for maintenance and repairs. So if you own a $480,000 home, you would aim to save $4,800 per year (or $400 per month).
So far, we’ve mostly touched on financial readiness. But there’s more. When trying to gauge whether you’re ready to buy a house, it helps to have an idea of where your life is headed.
What do we mean by that? As a homeowner, you usually have less flexibility than a renter to “up and leave” whenever you want. When you rent, if you’re unhappy about where you’re living, it can be easier to pull up stakes for a change of scenery.
Owning a house, on the other hand, could limit your mobility because you usually have to sell it first before moving somewhere else (unless you’re able to rent it out). And that process could take months.
So, ask yourself: Are you ready to put down roots where you are? (Cue the existential angst.) Of course, you don’t need to plan on living in the same city or house forever. But is this where you want to be for the next five years or more? Where you might want to raise a family?
If you’re going through some big life changes – say, with your job or relationship – it might not make sense to buy right now.
Got some pent-up wanderlust? Still trying to find yourself? Or can’t decide if the east or west coast is the best coast? Whatever the case may be, you may want to wait until the dust settles – when you have a more solid idea of where your life is headed – before buying.
Homeownership is often seen as a rite of passage. And you may feel the pressure to buy just because it’s what you’re supposed to do after you reached a certain age.
But in this case, age is really nothing but a number, and a number that can’t tell you much about whether you’re actually ready to buy.
Rather than focusing on what you’re expected to do or what others may be doing – take a look at where you’re at in life and see if it makes sense for you take on the responsibilities of owning a home right now.
And if you’re not quite ready, that’s OK! After all, buying a home is a big long-term investment. So there’s no need to rush into it if you’re not at a point where you can make such a commitment. (No matter what your friends might be doing!)
In the meantime, if you want to learn more about buying a home, visit the Marcus resources hub where we have articles on topics like:
This article is for informational purposes only and is not a substitute for individualized professional advice. Articles on this site were commissioned and approved by Marcus by Goldman Sachs®, but may not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA or any of their affiliates, subsidiaries or divisions.