Homebuying checklist
Buying a home is a major life decision. Before you start looking, use the following checklist to assess your readiness.
Rent vs. buy
Why buy when you can rent? Renting has its advantages, especially since your landlord will be responsible for covering property maintenance and repair. Renting may also be necessary until you’re officially ready to buy a home.
Despite the flexibility of renting, buying is often the better option, at least if you plan on staying in the area for five to seven years. A house is an investment — by buying a home, you’re keeping your financial future secure.
For example, if your rent and potential mortgage are the same amount of money, your mortgage payment would help reduce mortgage principal and build up equity in your home. With a rent payment, that payment just goes to the landlord and does not allow you to build value.
How much home can you afford?
Preparing to buy a house also means setting a budget. How much home can you afford?
As a rule, you’ll want to look for a home price three to five times your household income. However, your exact budget will depend on your existing debts and how much money you can put toward a down payment.
First-time homebuyer programs
Does the answer to the question “am I ready to buy a house” change if you have poor credit or limited savings? Not necessarily.
Many programs exist to help first-time buyers purchase the home of their dreams. Here are a few options you might consider.
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Conventional loans
Don’t discount traditional loan options just because you’re a first-time homebuyer.
A conventional loan is often preferable since it offers the lowest mortgage interest rates and other favorable loan terms. And while it’s customary to make a 20% down payment, some lenders allow first-time buyers to receive a loan with as little as 3% down.
Keep in mind, however, that conventional loans usually require a credit score of 620 or better. Some lenders can work with you if your score is slightly lower, though this can mean higher interest rates. If your credit is low, you might consider one of the other options on this list.
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USDA loans
If you don’t have money for a down payment, you might consider a loan backed by the U.S. Department of Agriculture. USDA loans allow you to purchase a qualifying home with no money down, nor will you be responsible for PMI payments.
To qualify, the homes you look at must be located in designated rural or suburban areas, and you’ll typically need a credit score of 640 or higher.
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VA loans
Active-Duty Military Members, Veterans, and spouses of both groups are all eligible for VA loans.
Backed by the Department of Veterans Affairs, VA loans allow you to purchase a home with no money down and no PMI requirement. Individual lenders may have specific credit score requirements, but you can often get a VA loan with a score as low as 580.
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FHA loans
Can you buy a home with poor credit? You can if you receive a loan backed by the Federal Housing Administration. FHA loans are available to anyone with a credit score of 500 or above, though you’ll need to put 10% down. But if your score is 580 or above, you’ll only need to put 3.5% down.
