20 Signs You're Ready to Buy a House

Chances are good that buying a home will be the biggest purchase you make. When you purchase your first property, you aren't just buying someplace to live but also making a big investment.

You need to make sure you're truly ready, so be on the lookout for these 20 signs it's time to become a homeowner.

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Ideally, you'll be able to make a 20% down payment on your home. This will allow you to avoid private mortgage insurance (PMI), which is an added cost you have to pay to protect the lender.

A down payment of at least 20% also reduces the chances you'll end up owing more than your home could sell for, if you need to move or refinance.

For some people, making a 20% down payment isn't possible. But unless you have at least some money to put down, you aren't ready to become a homeowner -- and lenders likely won't allow you to take out a loan in most circumstances.

ALSO READ: Down Payments: What They Are, How They Work & How Much to Put Down

Your credit score will impact whether you're eligible for a home loan or not. And it's one of the most important things lenders consider when they decide what rate to offer you.

If your credit score is low, you may not get approved for a loan at all or may be stuck with a high-interest bad credit mortgage. You should think about improving your score before moving forward if you can.

Lenders want to know you can pay your mortgage before they'll approve you for a loan. As a result, they'll want proof of income. And they'll want to see that your earnings have been stable for a while. If they fluctuate up and down a lot, this could be a red flag that you may not always have enough money to make payments.

The last thing you want to do is to commit to paying a mortgage loan and then find yourself without a job.

If you feel like your position is pretty solid or are confident you could find a new job soon if needed, you can feel pretty good about buying a home and committing to a mortgage loan.

But if you're worried that you could be let go at any minute, you probably don't want to take on such a major obligation.

Lenders don't just look at what you're currently earning -- they also look at how many financial obligations you already have. They do this by assessing your debt-to-income ratio, or DTI.

Theoretically, you can buy a home with a debt-to-income ratio up to 50%. This means your monthly payments (including housing costs) could add up to 50% of your monthly income. But many lenders have a stricter limit and won't provide a loan if your DTI is above 36%.

If you owe a lot of money, it could be difficult to come below this threshold. Consider working on paying down your balances before trying to buy a home.

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Buying a home means paying closing costs, and these can add up to a hefty sum. In fact, The Ascent's research found that average closing costs added up to $5,749.

If you don't have the cash to cover these costs, your lender may let you roll them into your loan -- but not always. And doing so can make closing costs more expensive since you'll pay interest on them.

Consider waiting to purchase a house until you have the cash to pay for closing expenses, if you don't already.

Moving is also very expensive, and can total thousands of dollars. That's true even for a local move. If you don't have the money to pay to move your belongings, you'll almost assuredly regret buying a house when you have to go into debt just to move in.

ALSO READ: 7 Hidden Expenses You'll Face When Moving

As a homeowner, you're going to be responsible for covering property taxes and insurance.

In some cases, these costs can add up to as much or more than your monthly principal and interest payment if you live in a high-tax state or are buying a property in a flood zone.

Be sure that you understand how much you'll owe in property taxes and what homeowners insurance costs in your area.

Buying and selling a home requires not only closing costs but also other expenses. For example, you may have to pay commission to a real estate agent.

Because of the up-front expenses you'll incur, it generally doesn't make sense to buy a property if you plan to move within five years. That's because the home likely won't appreciate enough in value for you to get back the money you put in.

So unless you're pretty sure you'll be happy to stay put in your house awhile, you may want to remain a renter.

If your monthly mortgage payment will be more than your rent, you should make certain that you understand the full impact that will have on your budget. In fact, it's a good idea to "practice" making your payments to see if they are sustainable.

You can do that by paying the difference into savings. If your rent is $1,200 but your mortgage will be $1,500, pay the extra $300 into a savings account for at least a few months to see what it feels like to live on your tighter budget.

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Since homeownership is a big financial responsibility, having an emergency fund is essential before you buy a place.

Your emergency fund could save you from foreclosure if you experience a job loss and income cut. It can also ensure you're prepared to cover unexpected expenses if something breaks at home.

Without this money, you could be in dire straits if a problem develops after your home purchase.

ALSO READ: 4 Big Emergency Fund Mistakes You Can't Afford to Make

Homes need ongoing maintenance to stay in top shape. From gutter cleanings to snow removal to changing your air filters, there are a lot of obligations to take on -- and a lot of associated costs.

It's also inevitable that things will break, even if you buy a relatively new home. You need to be financially prepared to cover these costs once a landlord is no longer responsible for taking care of them.

It's not just the cost of home repairs you have to think about -- you also need to be ready to deal with the hassle yourself.

Unless you're handy, this could mean calling in repair professionals and dealing with the logistics of managing workers.

You'll likely need to borrow to buy a home, so understanding your loan options is essential. You have a choice of:

• Conventional loans or government-backed loans, which can be easier to qualify for but come with some added fees.
• Fixed-rate mortgages, which come with predictable payments or adjustable-rate mortgages, which result in interest and payments fluctuating over time.

You should explore each option carefully to decide which type of loan is the best one for you to apply for.

You'll also have a choice of loan term. Most people choose either a 15-year or 30-year loan, but there are plenty of other options, including 20-year loans as well.

A longer loan term would mean your monthly payments are lower. But since you'd be borrowing for a longer period, interest costs are higher. A shorter loan term, on the other hand, means higher monthly payments, but your interest savings could be substantial.

Think through your options and decide what makes sense for you before you jump into buying a home.

ALSO READ: 3 Reasons I Chose a 15-Year Mortgage Over a 30-Year Loan

Getting the most affordable mortgage loan is also essential since even slight interest rate differences make an outsize impact when borrowing hundreds of thousands of dollars over decades.

So until you've found a mortgage lender offering the best rate, you aren't ready to buy a home.

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As long as you pay them off each month, credit cards are a no-brainer for savvy Americans. They protect against fraud far better than debit cards, help raise your credit score, and can put hundreds (or thousands!) of dollars in rewards back in your pocket each year.

But with so many cards out there, you need to choose wisely. This top-rated card offers the ability to pay 0% interest on purchases until late 2021, has some of the most generous cash back rewards we’ve ever seen (up to 5%!), and somehow still sports a $0 annual fee.

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Most home sellers will require you to provide proof of pre-approval. This means you've provided financial information to a mortgage lender to get preliminary approval for a loan.

Getting pre-approved both helps you get an offer accepted and gives you the clearest idea of how much your home loan will cost and how much you'll be allowed to borrow.

Understanding what you hope to get out of homeownership will help you make an informed choice about what properties to look at and how much to spend.

If you're hoping for a starter home, for example, you may have different priorities -- and want to set a different price range -- than if you're looking for a retirement home or a place to set down roots and raise a family.

If you're buying a property with a spouse, significant other, or friend, you want to make sure you both have a shared understanding. You need to be on the same page regarding how much you'll spend, how payments will be made, and what type of property you're looking for.

Once you take on a joint mortgage together, you'll also both be legally responsible for repayment over the life of the loan. So make sure you trust your co-borrowers will stick to their commitment to pay as promised.

In some parts of the country, buying a home is really expensive. Make sure you've researched prices and are confident in your ability to find a home within your price range.

And remember, you don't want to stretch to buy a home if doing so will make it impossible to accomplish other financial goals. If houses are very expensive in your area, consider a condo or townhouse. Or consider waiting to purchase a property until you've saved enough to afford one more easily.

These 20 signs you're ready to buy a home should give you a clear idea of whether it's time to take the leap.

This isn't a decision to make lightly, so make sure you're confident you're prepared for the financial realities of homeownership before you jump in.

Our credit card expert uses this card, and it could earn you $1,148 (seriously)
As long as you pay them off each month, credit cards are a no-brainer for savvy Americans. They protect against fraud far better than debit cards, help raise your credit score, and can put hundreds (or thousands!) of dollars in rewards back in your pocket each year.

But with so many cards out there, you need to choose wisely. This top-rated card offers the ability to pay 0% interest on purchases until late 2021, has some of the most generous cash back rewards we’ve ever seen (up to 5%!), and somehow still sports a $0 annual fee.

That’s why our expert – who has reviewed hundreds of cards – signed up for this one personally. Click here to get free access to our expert’s top pick.