wning a property is part of almost everyone’s goals and dreams, American or not. People buy houses for different reasons — to live in, to rent out, or to resell. But whatever the reason is, purchasing a property is a pretty big decision to make. It’s not like buying a cup of coffee or a pair of shoes. One needs to consider a lot of things when thinking of going house hunting. Especially in a pandemic.
COVID-19 wrought havoc last year and disrupted a lot of the things we had planned. It upended industries and gave pretty much everyone a hard time financially. And while a nationwide vaccination program has already begun, we’re still not out of the woods yet.
When it comes to big decisions like buying a house, there are other things to consider aside from home mortgage loans. We have listed down a few important things a prospective home buyer should give plenty of thought about when it comes to purchasing a property this year.The two things that are quite prevalent in the real estate industry today are:
- Mortgage rates are at a historic low despite a few upticks recently; and
- Housing inventory dropped 23% year-over-year decline.
Given the state of the real estate industry right now, here are some things that you should carefully consider before deciding to buy any property:
- You should have a stable source of income.
Under normal circumstances, a stable source of income is one of the main things that determine one’s readiness to take a step closer to homeownership. Now that we’re in a pandemic, all the more that you need to have job security that will help fund your mortgage.
Lenders typically look at how consistent a person’s employment history is. Most lenders ask for W-2s from the last two years for employees and tax returns from self-employed individuals.
- You should have a good handle on your finances and debt.
The next thing you need to think of is your debt-to-income (DTI) ratio. Your DTI is how you can measure your ability to pay off your mortgage monthly given your income and your outstanding debts.
Some of the typical things involved in your DTI are student loans, credit card debts, and car payments. It doesn’t include your living expenses like food, utilities, and gas.
According to the Consumer Financial Protection Bureau, most lenders are looking at a 43% or less DTI. If your DTI is higher than that, you will need to prioritize paying off your debts first before considering buying a house.
- You have built enough savings.
Getting approved for a mortgage doesn’t mean that you will not have upfront expenses as you purchase a property. You need to have set aside a considerable amount of money to pay for these upfront costs such as the down payment and the closing cost. Depending on the type of loan you get, your down payment may be anywhere between 3.5% to 20% of a property’s value. Closing costs could set you back from 2% to 5% of the purchase price.
On top of that, lenders also want to ensure that you have enough money to cover future mortgage payments and other property-related emergency expenses.
- You have a good credit score.
So let’s say you have a stable source of income, a good DTI ratio, and more than enough savings to get you through the initial costs of buying a home. The next thing you also need as a buyer is a good credit score.
Just like in any financial aspect in life, a good credit score — at least a mid-700 — helps determine your bankability to banks and private lenders. It gives them the assurance that you are worth investing in and that the money they lend you will not go to waste. So be sure to check your credit report and credit score before making any moves.
- You are ready to settle down in life.
Finally, when you’ve all checked the necessary finance-rated requirements, there’s only one thing left to consider: how ready are you to settle down in life?
This question is quite important because it talks about your emotional and mental state. It communicates that you’re ready to stay in one place for a long time and that you have long-term plans. It reflects that you’re mature enough to handle the pressures of not just maintaining a home but a household, too.
Anyone with money can buy a property but it takes greater maturity to know how to take good care of it and even increase its value as the years go by, able to turn an expense into an investment with a potentially good return.
Buying a house is a big thing. It’s not something you should take nonchalantly as if you’re just buying candy. In light of the pandemic, each and every major financial decision you make should be given plenty of thought and approached with utmost care. We don’t know how long this pandemic and its economic effects will last. The responsible thing to do at this point is to think long and hard about it before you decide.