7 Signs You're Ready To Stop Renting and Finally Buy Your First Home

The renting vs. buying a home debate is significant for many people, as it involves a major financial decision. Some argue that renting is akin to throwing money away, as you’re essentially paying off someone else’s mortgage. Others believe that the flexibility of renting outweighs the commitment of owning a home.

If you’re considering making the leap into homeownership this year, how can you determine if it’s the right time? The choice between renting and buying is not only substantial but also costly. However, you can approach this decision with both logic and emotion. To assist you in your journey, we’ve outlined seven signs you’re ready to transition from renter to homeowner.

1. YOUR RENT PAYMENTS KEEP GOING UP.

Rising rents are a significant concern for many renters across the country, prompting a growing number to consider buying a home. In several neighborhoods and real estate markets, rental costs often exceed the average monthly mortgage payment for a single-family home. If you feel trapped by the uncertainty of fluctuating rent payments, purchasing a home may be a smarter choice. With a mortgage, you gain financial stability and can build equity in your most valuable asset over time.

2. YOU HAVE A STEADY EMPLOYMENT.

Employment stability is crucial in the mortgage application process, as lenders evaluate your employment history before approving your loan. Typically, they prefer to see at least two years of consistent work with the same employer or in a similar field, indicating that you have the financial resources to meet your debt obligations. For freelancers or gig economy workers, it's essential to demonstrate a reliable income stream over the past few years through W-2s, tax returns, and other documentation. Remember, a stable job translates to a stable income, reducing your perceived risk as a borrower in the eyes of lenders.

3. YOU'VE SAVED UP FOR A DOWN PAYMENT, CLOSING COSTS, AND OTHER COSTS ASSOCIATED WITH OWNING A HOME.

For many home buyers, one of the most challenging steps in the home buying process is saving for a down payment. According to recent data from the National Association of Realtors, setting aside money for a down payment can be particularly difficult due to student loans and credit card debts. However, if you have a stable job and your income has improved, you’re in a better position to save enough to cover not only the down payment but also the additional expenses associated with homeownership.

It's important to note that the traditional 20% down payment myth is no longer accurate. In reality, loans insured by the Federal Housing Administration (FHA loans) require as little as 3.5% of the home's purchase price. Furthermore, government-backed loans such as those from the U.S. Department of Veterans Affairs (VA loans) and the U.S. Department of Agriculture (USDA loans) can even require no down payment at all. This means you don’t have to deplete your savings just to meet a 20% down payment requirement.

You’ll know you’re ready to transition from renting to owning when you’ve also saved for closing costs and other essential homeownership expenses, including property taxes, maintenance funds, and homeowner’s insurance. Being financially prepared for these costs can help ensure a smooth transition into your new home.

4. YOU'RE MANAGING YOUR DEBTS.

It isn't necessary for you to be totally debt-free when you apply for a mortgage. Loan companies simply need to make sure that you aren’t carrying too much debt compared to what you make, and that you’ll be able to afford to take on additional responsibility, such as your potential monthly mortgage payment. They do this by determining your debt-to-income (DTI) ratio, which measures how much of your monthly income goes toward paying off your debts.

Lenders ideally prefer a ratio lower than 36 percent, but borrowers with no more than a 43 percent DTI ratio can still qualify for a home loan. Getting your debt down to a more manageable level will help put you in a stronger position to get pre-approved. Assess your spending habits even while still renting, and change them as much as possible to improve your chances of finally owning your first place.

5. YOUR CREDIT SCORE IS IN GOOD SHAPE.

One of the biggest reasons why renters can't make the leap to owning a home is because of their low credit score. Having good credit matters because it will determine how much money you can borrow and how much you’ll pay in interest. A good FICO score is usually about 690 and higher, although borrowers with a credit score as low as 500 can already qualify for a mortgage depending on the loan program. 

When was the last time you’ve checked your credit report? If your credit is looking healthier because you’re making timely payments and settling your debts, you can have access to more conventional loan programs with lower down payments. Once you have addressed this important issue, you can rest assured that homeownership is now within your reach.

6. YOU'RE READY TO SETTLE IN A NEIGHBORHOOD YOU LOVE.

This one's quite subjective, but your preferred location and your capability to settle in one place are also huge considerations when buying your first home. If you anticipate moving in a few years, you know that you’ll only live in a particular area for a year or two, or you just can’t imagine yourself being tied down in one place, renting is likely your best option since you can leave whenever you want. Renting is also your smarter bet if you want to test out the waters in different areas where you’re thinking of buying a place. 

But once you’re ready to settle down in a neighborhood you love, you’re secured in your job, and that you can see yourself putting down roots in the next five years, purchasing a home is your next sensible step.

7. YOU'RE READY TO FINALLY BECOME A HOMEOWNER.

According to the latest Home Buyers and Sellers Generational Trends Report by the National Association of Realtors, a significant percentage of buyers—29%—cite the desire for homeownership as their primary motivation for purchasing a property. Your readiness to become a homeowner is a crucial factor in this decision. Owning a home means taking responsibility for repairs, maintenance, and upkeep costs. If you’re hesitant about these tasks or prefer the convenience of a landlord handling issues, it might be wise to continue renting for now.

Many individuals choose to rent rather than capitalize on lower interest rates due to these concerns. However, if the thought of home maintenance no longer overwhelms you, and you find satisfaction in DIY projects and yard work, it may be time to embrace homeownership. Being ready to invest weekends in maintaining your property is a strong indicator that you’re prepared for the responsibilities of owning a home and ready to take on the role of your own landlord.