READY TO COM­MIT

8 signs you’re pre­pared to stop rent­ing and buy a home

Orlando Sentinel - - EXTRA HOMES - By Ellen Chang

Rent­ing a place to live may give you the free­dom to move when you want and re­lieve you of the re­spon­si­bil­i­ties of home­own­er­ship, but at some point, most peo­ple yearn for their own home.

Buy­ing a house is a good way to start build­ing fi­nan­cial se­cu­rity. As you pay down the mort­gage, you build up home equity, which is a valu­able fi­nan­cial re­source.

Mort­gage rates are low right now, so if you think you’re ready to buy a home, it’s a good time to make the move.

“For prospec­tive and ac­tual home­buy­ers, the de­cline in mort­gage rates has pro­vided a much­needed boost to hous­ing af­ford­abil­ity,” says Mark Ham­rick, se­nior eco­nomic an­a­lyst for Bankrate. “This comes after home prices have risen steadily on a na­tional ba­sis since 2012.

“For those who were in­clined to buy a home any­way, the drop in the cost of fi­nanc­ing trans­lates to a po­ten­tial re­duc­tion in monthly mort­gage pay­ments. For those who weren’t ini­tially in­tend­ing to buy a home, the im­prove­ment in af­ford­abil­ity might be what helps them to get off the prover­bial fence.”

De­cid­ing whether to rent or buy a home is a ma­jor de­ci­sion. How do you know you’re ready? Here are eight signs that you’re ready to make the switch from renter to home­owner.

You’re tired of ris­ing rent prices.

Rental prices are on the rise na­tion­wide, ac­cord­ing to Apart­ment Guide, which tracks trends in the rental mar­ket. The aver­age rent on a onebed­room unit climbed 4.2% in 2018, to $1,140; twobed­room units rose to $1,354 and stu­dio apart­ments rose 5% to $1,065.

Ris­ing rent makes it harder to bud­get for monthly hous­ing costs and to save for other fi­nan­cial goals. When pay­ing rent be­gins to feel like a bad in­vest­ment and you want to build equity for the fu­ture, it’s time to fig­ure out what loan you qual­ify for, says Bill Golden, a sales as­so­ciate with ReMax Around Atlanta who has more than 30 years in the real es­tate busi­ness.

Golden says many renters are ready to buy a home once they are fi­nan­cially sta­ble. Many are mo­ti­vated by the pride of own­er­ship and want­ing more con­trol over their dwelling place.

”If one or more of those is tug­ging at your heart, at least look into the pos­si­bil­ity of own­ing rather than rent­ing,“Golden says. “If you’ve seen your rent es­ca­late sig­nif­i­cantly but you feel trapped rent­ing, it means the bal­ance may be tip­ping to­ward buy­ing,” Golden says.

Your credit score has im­proved.

A low credit score is a com­mon rea­son why renters can’t qual­ify for a mort­gage. A his­tory of late pay­ments and too much debt will hurt your score.

One sign that you’re ready to buy a home is hav­ing a health­ier credit score, says Bruce McClary, vice pres­i­dent of com­mu­ni­ca­tions for the Na­tional Foun­da­tion for Credit Coun­sel­ing in Wash­ing­ton, D.C.

Al­though bor­row­ers with a credit score as low as 500 can qual­ify for some home loans, they will be re­quired to make big­ger down pay­ments and pay higher mort­gage rates. A good credit score gets you bet­ter in­ter­est rates and loan terms.

“Es­tab­lish­ing a credit his­tory or re­cov­er­ing from a credit set­back can take time, but the goal of home­own­er­ship is still re­al­is­tic un­der those cir­cum­stances,” McClary says. “Re­ceiv­ing help from a non­profit hous­ing coun­sel­ing agency that also of­fers credit coun­sel­ing pro­grams can make a big dif­fer­ence for any­one strug­gling with those bar­ri­ers to home­own­er­ship.”

Be­fore you ap­ply for a mort­gage, get a free copy of your credit re­port.

You’re good at man­ag­ing debt.

An­other thing lenders look at when screen­ing mort­gage ap­pli­cants is their debt-to-in­come ra­tio, or DTI. This is a key met­ric that’s cal­cu­lated by adding up all monthly debts, then di­vid­ing the sum by your gross monthly in­come. The higher your DTI ra­tio, the more risk you pose to a lender.

Some con­ven­tional loans al­low a DTI ra­tio of up to 50%, but many lenders pre­fer a ra­tio of no more than 43%. If you pre­vi­ously had a high DTI ra­tio and have since paid off some high bal­ances, you’ll be in a stronger po­si­tion to get a mort­gage.

You’ll also have more wig­gle room in your bud­get to put money into an emer­gency fund for home re­pairs and other un­ex­pected ex­penses.

“Keep­ing credit card bal­ances low and debt un­der con­trol is ben­e­fi­cial in many ways,” McClary says. “It’s im­por­tant to con­sider that keep­ing credit card bal­ances at or be­low 30% of the avail­able credit limit has a pos­i­tive in­flu­ence on the credit score.”

You have enough set aside for the ex­tra costs of own­ing a home.

When a pipe bursts or the air con­di­tioner goes out in a rental unit, you don’t have to worry about pay­ing for it; that’s the land­lord’s re­spon­si­bil­ity. The same goes for prop­erty taxes, rou­tine main­te­nance and home­own­ers in­sur­ance.

That’s not the case when you own a home. All those costs are your re­spon­si­bil­ity. If your in­come has risen or you’ve been able to set aside sav­ings, you might re­al­ize you have enough ex­tra money to han­dle the added ex­penses of home­own­er­ship.

“Clearly, if you put ev­ery­thing you have into the down pay­ment and such to buy a house, then you have no money to do re­pairs should they come up,” Golden says. “You’re bet­ter off spending less on the house so you have some money to make im­prove­ments and re­pairs.”

You can af­ford the down pay­ment and clos­ing costs.

“First-time home­buy­ers don’t have pro­ceeds from an­other home to help fund the down pay­ment. It’s one of the main rea­sons why the down pay­ment is the big­gest hur­dle to home­own­er­ship,” says Rob Chrane, CEO of At­lantabased Down­Pay­ment Re­source, which finds pro­grams that help peo­ple buy homes.

The down pay­ment re­quire­ment de­pends on the type of home loan you get. For con­ven­tional loans, 20% down is usu­ally re­quired if you want to avoid pay­ing pri­vate mort­gage in­sur­ance, or PMI.

Some mort­gages in­sured by the Fed­eral Hous­ing Ad­min­is­tra­tion, known as FHA loans, re­quire just 3.5% down. Fan­nie Mae and Fred­die Mac back some mort­gage prod­ucts that re­quire just 3% down; and loans guar­an­teed by the U.S. De­part­ment of Vet­er­ans Af­fairs and the

U.S. De­part­ment of Agri­cul­ture re­quire no down pay­ment.

Renters in­ter­ested in buy­ing a home should com­pare loan pro­grams to see which one is best for them. In ad­di­tion, there are grants and pro­grams to help home­buy­ers with down pay­ments. ”There is a wide range of pro­grams for home­buy­ers to­day. We track more than 2,500 home­own­er­ship pro­grams across the coun­try ad­min­is­tered by fed­eral, state, county or lo­cal gov­ern­ment agen­cies, non­prof­its and em­ploy­ers.“

An­other ex­pense you have to be ready for is the clos­ing costs, which typically equal 2% to 7% of the prop­erty’s sale price. The good news is that some clos­ing costs are ne­go­tiable.

“Be­cause the buy­ers are putting so much of what they have into the down pay­ment, we usu­ally try to get a seller to pay some, if not all, of the clos­ing costs,“Golden says. ”Even if (the buy­ers) have to pay a lit­tle more for the house, it doesn’t hurt their pocket as much.“

You’re ready to set­tle down in one place.

Buy­ing a home in­volves a lot of up­front costs that can take a few years to re­coup, so if you an­tic­i­pate mov­ing be­fore you can re­cover those costs, home­own­er­ship might not be right for you.

No one works at the same com­pany for decades any­more, but a renter who is ready to buy a house should have job se­cu­rity, says Ham­rick. A sta­ble job means sta­ble in­come, which low­ers the risk that you will stop mak­ing your mort­gage pay­ments and de­fault on the loan.

“For two-in­come house­holds, ob­vi­ously the risk and op­por­tu­nity are twice that of sit­u­a­tions where there’s just one wage earner,” Ham­rick says. “In a per­fect world, (buy­ers) would buy a home well be­neath their means so they aren’t de­vot­ing so much of their in­come to the mort­gage and other re­lated costs.”

You’re go­ing through a ma­jor life change.

Many renters de­cide to pur­chase a home after a ma­jor life event, such as get­ting mar­ried, says Henry Yoshida, a cer­ti­fied fi­nan­cial plan­ner and CEO of Rocket Dol­lar, a Tex­as­based provider of self­di­rected re­tire­ment ac­counts.

Mar­riage, a grow­ing fam­ily, a new job and chil­dren leav­ing the nest are cat­a­lysts for peo­ple to buy a home.

“The four ma­jor ci­ties in my home state, Texas, are si­mul­ta­ne­ously on top 10 lists for rais­ing a fam­ily and re­tir­ing, so I see this first­hand,” Yoshida says. “My own neigh­bors on ei­ther side are re­tirees from Cal­i­for­nia and a young fam­ily who re­lo­cated from the North­east for a job.”

You know what you want.

It’s smart to have a good idea of the area or neigh­bor­hood you want to live in and the type of home you want be­fore you be­gin your quest. Houses, town­houses, con­dos, coops, du­plexes — there are lots of op­tions out there, and each one has its own con­sid­er­a­tions for costs, up­keep and per­sonal en­joy­ment.

If you buy a condo, for ex­am­ple, you don’t have to do the yard­work, but in ad­di­tion to your mort­gage, you must be able to af­ford the home­own­ers as­so­ci­a­tion fees.

De­ter­mine what you need and what is most im­por­tant to you. Is it be­ing near a good school or within walk­ing dis­tance of your job? Do you mind nav­i­gat­ing stairs or hav­ing neigh­bors live above you? Do you want lots of ameni­ties?

If you’ve moved to a new city or state to take a job, it might be a good idea to rent un­til you’ve fa­mil­iar­ized your­self with the area. That way, you are more likely to choose a home and neigh­bor­hood you feel good about.

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