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You've done the math and you know you have both the upfront and the ongoing money you'll need to buy a house. The upfront money includes the down payment you saved, the closing costs and money you’ll have left over for an emergency fund. Saving the down payment to buy a house was tough but congratulations! You've done it
You know you have good enough credit to buy a house
Your credit score is an indication of how creditworthy you are. You’ve reviewed all three of your credit reports ( Equifax, TransUnion, Experian) and found no problems such as late payments or having skipped out on a couple of bills. You have a good credit history as you've made all of your payments on time every time. You got your credit score and it was 785, which means that you have excellent credit and it should be very easy for you to get a mortgage at a low interest rate.
If you're not familiar with how your credit score is calculated, watch this short video that explains why your FICO score is your most important score and how it's determined.
You've been in your job long enough
Most mortgage lenders want to see that you've been in your job for at least two years as they will calculate your income based on your job history for the past 24 months. You've had your job for a bit over four years, which shows a good amount of stability. Plus, you've again done the math and know what your income will look like to potential lenders and you're positive it's high enough that you’ll be able to get a mortgage loan.
You know what type of home you want
You've looked at the alternatives of a single-family home, a duplex, a town home or a condominium. You like the idea of buying a duplex where you’d earn extra income by living on one side and renting out the other. However, the cost of a duplex in a good neighborhood is more than you can afford to spend on a house. While you would love to have a single-family home you've decided it would be better to start with a townhome so you wouldn't have to worry about exterior maintenance and lawn care. You know there will be a monthly homeowner’s fee and you have it covered in your budget. Your big challenge now will be to find a townhome in a good neighborhood at a price you can easily afford.
You're ready to stay put
You’re sure that you’ll want to stay in that new home for at least the next three to five years. This is because you understand that if you were to buy and have to sell in less than two years you'd likely lose money on the house because its appreciation won't catch up with the closing costs you were required to pay. And if the economy were to take a downturn in the next 18 to 24 months you could actually find yourself underwater – with the house worth less than the amount of your mortgage loan.
You have the maturity to own a home
You realize that to buy a house means being mature enough to do the maintenance work necessary to keep it in good shape and to make all of your mortgage payments on time every time. You understand that with the freedom of owning a home comes certain responsibilities and you believe you're mature enough to handle them. You have good self-discipline so that when a window needs caulking you know that you'll caulk it. And when winter rolls around you'll remove those screens and replace them with storm windows to keep your heating bills under control. There are always things in life that will tempt you but you're convinced you'll be able to stay on your budget so that the money will always be there to make the payments on your mortgage loan and, if appropriate, to pay your homeowner's fee.
You know how to get approved for a mortgage
You've already done the two first steps in getting approved for a mortgage, which was determining how much house you could afford and getting your credit reports and score. You understand the differences between pre-qualification and pre-approval as pre-qualification is something you can do with just about any lender. Unfortunately, it is not binding. If you can get pre-approval from a lender, it's a much better option because it will show potential sellers that there is at least one lender that will be willing to grant you a mortgage because it’s checked your credit and done other financial evaluations. You intend to become pre-approved as it's more of a guarantee that you will be able to get a mortgage loan then just a pre-qualification.
Finally, you understand the importance of the appraisal to buy a house. This is because lenders are typically unwilling to loan you more money than what the property is worth. You might love that townhouse listed at $180,000 but if it appraises for just $150,000 no lender is likely to loan you the $180,000. When this is the case you need to either get the seller to come down in price or you will need to forget the house. Plus, if you were to pay the $180,000 for that house you'd be immediately upside down, which would certainly be a bad thing.