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Owning your own home has long been a touchstone of the American Dream. It represents a certain level of independence, a place that provides shelter for you and your family and the memories you create there, and it also builds value over time.

That dream often comes to the forefront in people’s lives once they begin to stabilize their financial situation and move into a career that earns a healthy income and future opportunities for more. Is it time to buy your own home? More importantly, are you ready to buy a house? Here’s what you need to consider when figuring out if it’s time to buy your first home.

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Can you afford it?

This is the big question when it comes to your first home. The truth is, homeownership is expensive in ways that go beyond just the mortgage. Of course, the mortgage itself is a huge expense, but on top of that, you’re facing homeowners insurance, property taxes, the possibility of homeowners association fees, and all of the endless costs of maintenance and repairs that your landlord would have covered in the past.

What do you get out of all of that expense? You have the freedom of having your own home, which you can decorate and modify to your heart’s content and have minimal rules for what you can do with it. Furthermore, the value of that house will gradually rise over time, so as you pay down the mortgage, the equity you have in the house rises very nicely.

Is homeownership worth it? It is if you’re financially prepared for it, so let’s look at that financial preparation.

What mortgage lenders look for

When you apply for a mortgage to buy your first home, lenders want borrowers who are financially capable of making on-time house payments consistently. They don’t want borrowers to default, so before they lend, they want to be confident that you’re going to be able to make the payments along with all of the other expenses of homeownership. They’re assessing your overall financial health, in other words.

How do they assess this? Most lenders use several elements.

First, they take a look at your credit history. Do you have a history of paying back the money you owe? Do you pay your bills on time? If you have a good track record here, they feel more confident about lending you money. You’ll want to know how to build credit and how to clean up your credit history.

[ Read: Tips for Making Your Mortgage Application Easier ]

Lenders also consider your employment history and current income level. Your employment history tells home lenders whether you’re able to consistently hold a job and gradually move toward ones with better pay, showing reliability and the promise of continued financial stability. Your current income gives mortgage lenders a good estimate as to exactly how much you’ll be able to pay for a mortgage payment right at the start of the mortgage, which they’ll use to partially calculate how much to lend you.

In general, lenders are careful to not lend first-time homeowners more than the lender is very confident that the borrower can handle in terms of a monthly payment, and that decision is made based on those factors. Another big factor in how much home you can afford is your down payment.

Down payments

So, what exactly is a down payment? It’s money that you use for an initial payment on your home, with your mortgage covering the rest of the cost of the home. Having a down payment means that you’ll be able to afford a more expensive home. Lenders also want to see a down payment, because it’s a sign that you’re financially stable enough to be living below your means, but it is by no means a deal-breaker.

The truth is that many first time home buyers don’t have a down payment at all, or if they do, it’s less than the 20% down payment that many lenders ideally want to see. Lenders know this, so they offer mortgages with no down payment.

What’s the drawback of mortgages with no down payment or only a small down payment? They usually come with mortgage insurance. Mortgage insurance is a type of insurance that you pay for (your lender sets it up for you) that offers some financial guarantees to the lender in the event that you’re unable to make your payments.

[ Next: Should You Buy a Home When Mortgage Rates Are at Record Lows? ]

Usually, mortgage insurance amounts to an additional 1% interest on your mortgage, or around $300 a month added to your mortgage payment for every $100,000 in home value. You can get rid of mortgage insurance once you have 20% equity in your home, meaning that the difference between the current value of your home and the current balance of your mortgage is 20% or more of the current value of your home.

For some borrowers, there are programs for down payment assistance that can help you buy your first home. These programs tend to be offered in specific areas and to borrowers with specific qualifications, such as the Homes for Texas Heroes program, which provides assistance to teachers in Texas. Look into down payment assistance programs in your area; these can usually be found by doing a Google search for “down payment assistance programs” along with the state where you’re looking to buy.

If you are a first-time homebuyer, programs like the Federal Housing Authority (FHA) offer government-backed FHA loans that have a down payment requirement of 3%. Granted, you will still have to pay mortgage insurance, but you will be able to buy a house without putting 20% down.

The 2021 housing market

Another factor to consider is the current state of the housing market in your area. Are there lots of homes for sale? Do they sell quickly? An area with lots of homes for sale in which those houses stay on the market for a while is considered a “buyer’s market,” which means it’s a good time to buy as competition is driving prices down. On the other hand, an area with few homes on the market and houses sell quickly is more of a “buyer’s market,” which means that prices are elevated and it may not be the best time to buy.

[ See: These Cities Are Dropping Rent Due to COVID-19 ]

In early 2021, the American housing market looks like a mixed bag. In the largest and traditionally most expensive markets, housing prices are actually dropping, but in smaller cities across America, particularly in metro areas traditionally with a lower cost of living, home prices are rising sharply as the demand exceeds supply. However, the cost of living is holding steady or even slightly declining in many of those smaller metro areas, even with the rise in housing prices.

What does this mean for you? If you’re looking to move to an expensive area, this is probably the right moment. If you’re aiming for a smaller metro area or more rural living, it’s a mixed bag, with many areas remaining a seller’s market, so you’ll want to look carefully at your desired area.

How you know you’re ready to buy a house

Armed with this information, how do you know if you’re really ready to buy a house? Here are five key factors to look at.

  • Are you earning enough income to afford the house you want? Lenders will rarely lend to first time home buyers if their mortgage payment will exceed 30% of their gross income.
  • Does your income seem relatively secure, with real promise of better pay in the future?
  • Have you been easily able to pay all of your bills lately?
  • Do you have a recent history of good credit? Are your credit cards at a manageable balance level and going down?
  • Do you have down payment savings that you’ve built up recently, or have been rapidly eliminating other debts recently?

Those factors are not only a sign of your own financial health, but are also signs that lenders will use to decide whether to lend to you.

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