How to know if you're ready to buy a home

Savings Angel

Are you considering buying a new home or selling yours this spring? Before you start house hunting, it’s critical to assess your finances to determine what you can really afford.

Here are some steps to help you decide from Josh Elledge at

Calculate your household take-home pay
Don’t calculate what you can afford based on your gross income. Be sure the payment estimate includes taxes and insurances, in addition to the principle and interest.

Use a mortgage calculator to make some estimates
The maximum you should borrow should not go over 25 percent of your take-home pay. Even if you qualify to borrow more, it doesn’t mean you should borrow more.

Check your credit score
Typically anything above a 620 score will get you qualified for a mortgage. The lower your score, the higher your mortgage interest rate will be.

Assess your down payment ability
A conventional mortgage requires between 5-20 percent of the purchase price, depending on the underwriting requirements. An FHA mortgage - a minimum of 3.5 percent. The more you can put down, the lower the interest rate you’ll be offered.

Make sure you can cover closing costs
These include funding your escrow account (for property taxes and insurance), bank or mortgage lender fees, title company fees, recording fees, and more.

Do you or the home qualify for a different type of mortgage?
Military veteran? -- you could qualify for a VA loan. Is the home in a “rural development” area? You might be able to get a specialized loan with a zero-down payment and lower mortgage insurance costs.

Meet with a mortgage professional
A good loan officer will explain how mortgages and interest rates are calculated, what you qualify for, and the maximum you should borrow. If the loan officer isn’t willing to spend time answering all your questions and thoroughly explaining, find someone else.

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