Are you financially ready to become a homeowner?

A house may be the largest purchase of your lifetime, so it’s no surprise you may feel a range of emotions when beginning the homebuying process. Understanding your financial situation, including your credit score, debt, and more, can tell you whether you’re ready to start the home search or if you need to do a bit more prep work first. Ensure you’re on solid ground before you start your home search.

There is no “magic score” to qualify for a home mortgage. A high score may qualify you for a better interest rate, but some programs offer mortgages to borrowers with low credit scores. Where are you in the process? 

• Building credit: If you don’t know your credit score or are just starting to build your credit, you can access your FICO credit score online or request a free credit report from the three major credit-reporting agencies at AnnualCreditReport.com.
• Credit score is less than 700: Several programs offer mortgages to borrowers with credit scores lower than 700. But, if you’re interested in potentially improving your credit score, you can take steps like paying your bills on time, keeping a low balance on your credit card, and not applying for new credit. 
• Credit score is 700 or higher: You’re on the right track to potentially qualify for a lower interest rate when you apply for a mortgage. A high credit score shows you pay bills on time and use credit responsibly. 

Mortgage lenders will look at your debt-to-income ratio, which is a measure of your monthly minimum debt payments compared to your monthly income. In general, the lower your debt-to-income ratio, as well as a lower amount of debt, the more likely you are to potentially qualify for a mortgage. Having fewer overall debts may also make your monthly mortgage payment more manageable for your budget. 

Almost all mortgage options require a down payment, which is the sum of money you pay up front to make up the difference between the price of the home and the amount of the mortgage. While the size of your down payment can influence what financing options and interest rates are available to you, the more you put down, the less you’ll have to borrow. And, though a 20% down payment on a home is not required, additional insurance may be required.

Owning a home means taking on the responsibility of homeowner-specific expenses. Below are some of the most common expenses new homeowners should be familiar with.

• Insurance: Homeowners insurance covers specific aspects of your property, as well as the belongings you keep in your fixed structure (home and attached garage). It may also help protect you financially if a person is injured on your property. Flood insurance is only required if your home is in a Special Flood Hazard Area. It can financially protect your house and belongings in the event of a flood. Private mortgage insurance (PMI), which is figured into your monthly mortgage payment, is typically required if you make a down payment of less than 20% on your home.
• Utilities: If you own your own home, you’ll likely pay for all utilities yourself. To ensure you know the full cost for a home’s utilities, research the average utility costs for homes in your area.
• Taxes: As a homeowner, you’ll be required to pay property taxes based on the appraised value of your home. If you have escrow, these will be part of your monthly mortgage payment. In some cases, mortgage interest or property taxes could be tax-deductible. Be sure to consult a tax advisor regarding the deductibility of interest.
• Maintenance: For a single-family home, you’re responsible for all maintenance expenses and upkeep, such as fixing or replacing a leaky roof or HVAC system, lawn maintenance, and more. Condominiums and townhouses may have some maintenance costs and labor covered with homeowners association (HOA) dues.