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Are you ready to buy a home? Many renters have no idea.
Millions of renter households in 2022 would have been able to buy a house that year, according to a new analysis by Zillow, which is based on estimates from the American Community Survey by the U.S. Census Bureau.
In 2022, 39% of the 134 million families residing in the U.S. did not own the home they lived in, according to Census data. Among those who did not own their home, roughly 7.9 million families were considered “income mortgage-ready,” meaning the share of their total income spent on a mortgage payment for the typical home in their area would have been 30% or lower, Zillow found.
Some people simply choose to rent over buying. But on the other hand, households might be unaware they can afford a mortgage, said Orphe Divounguy, senior economist at Zillow.
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If you’re coming to the end of your current housing lease, it may be smart to see if you’re in a position to buy, said Melissa Cohn, regional vice president at William Raveis Mortgage.
“If rental prices are coming up, maybe it’s a good time to consider [buying instead],” she said.
Getting verbally prequalified from a lender can help, said Cohn. “The first step is trying to understand whether or not it’s worth getting all the paperwork together,” she said.
But keep in mind that you’ll need to go into that important conversation with a working familiarity of crucial facts like your annual income and debt balances.
Understanding the status of your credit and your debt-to-income ratio is a good place to start.
1. There’s ‘no harm’ in checking your credit
In order to know if you’re ready to buy a home, it’s important to understand what your buying power is, said Brian Nevins, a sales manager at Bay Equity, a Redfin-owned mortgage lender.
Some would-be homebuyers might have no idea what their credit situation is or are “apprehensive to even check” out of a mistaken belief that it will impact their credit, he said.
In fact, experts say it’s important to keep an eye on your credit for months ahead of buying a home so you have time to make improvements if needed.
“That’s changed a lot in our industry where we do soft credit verifications upfront now, where it’s going to have no impact on somebody’s credit score,” said Nevins. “There’s really no harm in checking.”
Your credit matters because it helps lenders determine whether to offer you a loan at all, and if so, depending on the ranking, at a higher or lower interest rate. And typically, the higher your credit score is, the lower the interest rate offered.
That’s why being “credit invisible,” with little or no credit experience, can complicate your ability to buy a home. But as you build your credit, you have to strike a balance by keeping your debt-to-income ratio in line. Your outstanding debt, like your student…
Read More: How renters can tell if their finances are ‘mortgage-ready’