Buying a home is complicated and takes a lot of preparation. It’s also one of life’s major decisions. While you may be sick of renting, you need to be financially and personally ready for the commitments of homeownership. Deciding whether to rent or buy a home is a major decision. Here are 6 signs you’re ready. And if you find yourself unprepared? Jrny provides a gradual way to prepare yourself for ownership.
1. You’re no longer happy renting
Renting a home is cumbersome! You pay rent each month but can’t treat the home like your own. You want to redecorate, but your landlord doesn’t like your taste. You’ve always wanted a pet, but you can’t find a home that allows you to bring one. You rely on the estate agent for repairs, but can’t seem to ever reach them. If that sounds familiar, it may be time for you to consider other options.
While owning your own home comes with responsibilities, it does give you the freedom to make long-term decisions that work best for you. Additionally, there’s also a financial benefit in owning a home: your monthly payments can help you build equity and wealth. That sounds better!
2. You have a good credit history
To buy a home, you typically need to get a mortgage. This allows you to finance up to 95% of the home’s purchase price using debt. However, to qualify for a mortgage that matches your needs, you’ll need a good credit history.
How good does your credit history need to be? That depends on how much you’re trying to borrow and a few other factors. The more you want to borrow, the better your credit needs to be. To qualify for a 95% loan-to-value mortgage, you typically need a nearly perfect history of making your payments. In the U.K., there are 3 major consumer credit scoring agencies: Experian, TransUnion and Equifax. Here’s a guide to what they consider a “good” score that would give you access to most mortgages:
- Experian – 881 to 960 out of 999
- TransUnion – 604 to 627 out of 710
- Equifax – 420 to 465 out of 700
3. Your debt is under control
When mortgage advisers and lenders screen your application, they look at a metric called debt-to-income ratio, or DTI. This measures the sum of your monthly debt payments divided by your gross monthly income. Higher DTI scores reduce your affordability and reduce the chances that you qualify for the mortgage that you want and need.
Typically, you’ll qualify for a mortgage as long as your DTI ratio is below 50%. Under 20% is considered a very good score and could help you get better mortgage deals.
4. You have enough savings for a deposit
A big hurdle to homeownership is saving for the deposit on your home. The deposit makes up the remainder of the purchase price, that isn’t financed by the mortgage. For example, if you get a 90% loan-to-value mortgage, you’ll need a deposit of 10% of the purchase price (and usually you’ll need to pay for your purchase costs and stamp duty).
While mortgages up to 95% loan-to-value are available, they are becoming more difficult to get and typically require a stellar credit history and DTI ratios. More commonly, mortgages are limited to 90% loan-to-value, requiring the buyer to commit 10% of the purchase price as a deposit.
5. Your income can support the costs of owning
Homeownership isn’t cheap! In addition to paying the principal and interest on your mortgage, you’ll need to consider other costs such as home insurance, service charges, ground rent, utilities, council tax, and other costs. When selecting a home, all aspiring homeowners need to be aware of the other charges that come with owning a property and take this into account when budgeting.
The biggest cost of homeownership is generally related to your mortgage. With interest rates going up, households all over Britain are feeling the squeeze, while aspiring homeowners are forced to reduce their aspirations to match their budget realities.
6. You know how the buying process works
Buying a home is hard! Before you even look for a home, it’s common to discuss your case with a mortgage adviser who can help get you an agreement in principle. This is a document that mortgage lenders provide, which states that they would lend to you “in principle” subject to a full underwrite. This gives you more credibility and shows sellers that you’re a serious buyer. Once you agree an offer with the seller, you’ll need to go through the conveyancing process, the longest part of buying a home! This requires a conveyancer (a type of solicitor) who will act on your behalf and coordinate between your mortgage advisers, the estate agent, and the seller’s solicitors until contracts are exchanged. This can be quite daunting for first-time buyers. Understanding what to expect at each stage will help guide you through the homebuying journey until you pick up the keys!
Assuming all of these criteria apply to you, you may be ready to buy a home with a normal mortgage. What if they don’t apply? Jrny offers a solution!
How does Jrny help?
Jrny allows you to lock-in your dream home now with just a 2% move-in contribution, rent it from us and buy it later! During your tenancy, you rent from us with all the benefits of owning (you can decorate your home and bring pets!). Additionally, your monthly payments count towards your credit score, helping you get ‘mortgage ready’. When you’re ready to buy, we guide you through the process and ensure that you don’t face any competing bids while you exercise your option to buy.
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