When Should I Buy a House?

Buying a house for the first time is as exciting as it is nerve-wracking. Knowing what to buy and when are two of the more stressful life decisions as it can be hard to decipher what time is the right time. Thankfully, Ruoff is here to ease the weight of this monumental process with a few surefire signals that you are ready to take the plunge.  

What to Consider When Buying a House for the First Time

There are a handful of things to consider before making the big first purchase. Financial stability is obviously a huge factor, but there are other less-obvious items to take into account, as well.

1. Debt-to-Income Ratio – The majority of mortgage approvals require a DTI (or debt-to-income ratio) of 36% or lower. This number is easily calculated and provides a quick look at how much of your total income goes to cover outstanding debt. Depending on the type of loan, some lenders will approve DTI’s up to 43%, but the lower the number, the better when navigating the route to your first home. To make sure you can continue to afford the house once you’ve moved in, it is essential to not take on more debt than you can manage.

2. Down Payment – While PMI (private mortgage insurance) is always an option, a good way to see if you are ready for your first house is to calculate how much you have available for a down payment. Putting at least 20% down allows buyers to avoid the additional monthly PMI charge and also significantly reduces the total interest paid over the life of the loan. Having trouble getting to 20%? Check out our previous blog post on 30+ Creative Ways to Save for a Down Payment.

3. Credit Score – People tend to struggle with credit scores in early adulthood given that there have only been a few years to start building credit at all. Because of this, it is a good idea to give yourself a handful of years to bump that credit score as high as possible before locking in a 30-year mortgage rate. The higher the credit score, the lower the interest rate a bank will offer, and the more money left in your pocket at the end of the day. A score of at least 620 is a jumping off place, but the best rates will be found above 700, with optimal rates for those at 740 or higher.

4. Emergency Fund – It is not just important that a buyer can comfortably cover their mortgage payment each month, it is also essential that they have enough of a surplus available to float them should disaster strike. An emergency fund of at least 6 months’ worth of payments is typically advised in the event of loss of employment or serious illness. Additionally, this provides homeowners with a good cushion should unforeseen repairs be necessary.

5. Commitment Level – If you have checked all of the boxes on the financial side of things, now it’s time to look at your timeline. Most loans would require a purchaser to remain in the house for at least the first 3-5 years to recoup the money that goes in on the front end of the mortgage. Unless you’ve found a complete steal of a deal, you’ll want to make sure you intend to stay put for at least a few years to avoid being upside down when it’s time to sell.

6. The Current Market – Finally, it makes good sense to consider the current state of the real estate market when pulling the trigger on your first home. The first purchase generally comes with a smaller down payment and less income available to tack on for additional principal payments in those first years, so buying when prices are at an all-time high may not be the best move. Be patient and make sure the price of the home is not unnecessarily inflated to avoid landing in a dead-end situation down the road.
   
   

What’s the Best Age to Buy a House?

The truth is that there is no “best age” to buy your first home, but that being said, there are most definitely advantages to making that first big purchase in early adulthood if you can swing it. As long as you’ve gotten yourself into a solid financial situation and are mature enough to take on a significant level of debt, buying young can help you build equity and put you into a better position in the future when you are ready to transition from starter home to dream home.