3. You Have a History of Managing Your Debt Well.
Lenders look closely at the amount of debt you have and how you have managed that debt. Ideally, a lender wants you to have a 43% or less debt-to-income ratio, although some conventional loans will allow you to have a 50% DTI.
You can calculate your debt to income easily by adding up all of your monthly debt payments. Once you know what your monthly debts cost, you can divide that number by your gross monthly income.
If you have high balances on your credit cards, you can pay them down to look more appealing to lenders. You do not have to pay them off completely.
Instead, pay them down enough to hit the right DTI. Then, you can put that extra money into building an emergency fund for your home.
4. You Think It’s Time to Put Down Roots in a Specific Place.
Purchasing a home requires paying a lot of costs at the beginning that cannot be recouped in the first few years of ownership. In other words, for a home purchase to make financial sense, you need to be ready to stick around for a while. Over time, the investment can prove quite positive, but it does take time.
Real Estate has been shown over and over again to be an excellent long-term investment. Like other investments, it is not for someone who might need to move quickly because of a job relocation.
Lenders prefer you to have had the same job for a while as well, a job you are probably going to stay at for years after you purchase the home. They prefer you to have a steady, stable income so that you are less of a risk. Your regular income ensures you won’t miss mortgage payments.
5. You Are Sick of Pouring Money Into Someone Else’s Mortgage.
As a renter, your rent payments are paying the mortgage of the landlord or property owner. If you are ready to put all that money towards your future, buying a home makes sense. Each mortgage payment you make will increase the equity in your home, which is an investment for you.
A home purchase is not always a guaranteed home run—all investments carry risks. But, generally, you can expect that you will gain many financial benefits from putting money into the property over the life of your mortgage.
There are also tax advantages of owning a home as well. When it comes time to sell, you could have a sizable real estate capital gains exclusion. If you are single, the tax exclusions will be $250,000. If you’re married, the exclusion will jump to $500,000.