Buying a house is a big step, but when you know, you know.

By Lauren Phillips
September 11, 2019

The steps to buying a house may be many, but if you’re willing to put in the effort, the final result—Owning property! Painting wherever and whenever you want! Earning home equity!—is worth it. Having the desire to buy a home and actually being ready to do so are two different things, though. Many people want to buy a home, but buying a home takes some financial preparation, and without that prep, the process can be longer, more difficult, or even impossible.

To distinguish between wanting to buy a home and actually being ready to do so, we turned to Shelby McDaniels, executive director of corporate home lending at JPMorgan Chase. McDaniels’ tips can help you decide if now is the time to buy, or if you’re better off renewing your lease and renting for another year.

If you think you’d like to buy a house someday in the near future, working toward these signs can help you get ready; if you already happen to have your finances in order but have been waiting to take the leap, it may be time to consider when the timing will be right.

If you can meet all these requirements, start researching asking price and home values in your area, because you’re ready to make a down payment on a house: Homeownership lies in your future.

RELATED: The Age When You Should Buy a House, Get Married, and More, According to a New Survey

1. You have money for a down payment

Figuring out how to pay for the down payment is one of the top barriers to buying a house. Conventional wisdom says down payments should be at least 20 percent of the price of a house, which can be tens of thousands of dollars, depending on how much houses in your area cost. That’s not always the case, though, McDaniels says.

“Some home loans may require far less of a down payment (between three and five percent), and the industry average is typically within six and eight percent,” she says. So that down payment may not have to be quite as large as you thought, but a larger down payment can mean better mortgage terms and make it easier to pay off your mortgage early.

2. Your credit score is good

“Your credit score helps determine the interest rate and other costs you pay on a mortgage loan,” McDaniels says.

A higher credit score—essentially anything in the 700s or higher—is considered excellent and can help you get a lower interest rate, ultimately saving you money on the cost of your home. If you don’t already know your credit score, you can easily find it online with monitoring tools; some even offer tips and help for raising your credit score. Some banks also offer free credit score tracking.

To get started, head to annualcreditreport.com, a federally authorized site that allows you to check your credit reports for free each year. It won’t show you your credit score, but it will help you check for score-lowering debts on your credit report; if you see any red flags or suspicious activity, you’ll want to address them before trying to buy a home.

3. You have extra money for closing costs

As if a sizable down payment wasn’t enough, you’ll be expected to pay closing costs—covering appraisals, inspections, and more—when you sign on the dotted line for your home. If you’re considering buying a home, make sure you have enough for a down payment, plus a little for closing costs and other mandatory expenses that come with buying a house, such as taxes, homeowner’s insurance, and more. (Your lender can help outline some of these.) You also want a separate emergency fund, just in case, so save those pennies.

“While there is no way for a buyer to completely avoid paying these fees, there are ways that homeowners can save on them,” McDaniels says. “Some banks offer help with their closing costs for buyers if they use the bank to finance their purchase.”

4. You can get a favorable loan

Varying mortgage options will have different loan terms, interest rate types, and loan types. Make sure you understand what options are available to you, because they determine how much you’ll pay in interest (and the size of your monthly payments) for the next few years. Study up on fixed and adjustable mortgage rates, and you’ll be able to work with potential lenders to find the best possible option with the confidence that you know what you’re talking about.

Sometimes, global or national market factors mean it’s not a good housing market for buying a house; if you’re able to wait for interest rates to drop, you may be better off in the long run. If you have a lender you trust and are able to work with and interest rates are low (meaning you’ll pay less over the life of the loan), you’ve got a good mortgage option: time to start house shopping.

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