Are You Financially Stable to Buy a Home: 3 Signs to Note

People go through several milestones in their lives, including family-related matters. This includes having a wedding and getting married, as well as becoming a parent. One of the key ones is buying a home for the first time. That said, the timing for taking on that huge step isn’t necessarily set in stone. It varies from person to person given several factors, such as mortgage interest rates.

When deciding to buy a home, one of the questions you’ll ask yourself is whether or not you are financially stable enough to pay your mortgage. Even if the lowest mortgage rates are at hand, if your finances aren’t stable, it can still be pretty tricky. 

What Are Signs of Having the Financial Stability to Buy a Home?

Your Credit Is Good

One of the cornerstones of a major purchase like an automobile or home is having full awareness of your credit score or FICO. Thankfully, technology has afforded people access to multiple resources online, which can help in running a credit check. Many of them are able to do the work of pulling reports from all three of the big credit bureaus.

If your credit score is 740 or higher, then you’re in the best possible place. Needless to say, having a high credit score makes a direct impact on getting a loan. It also helps with PMI (private mortgage insurance). If the down payment is below 20% of the final sale price, PMI is required. In short, a lower PMI payment is possible the higher a credit score goes.

In cases when the credit score doesn’t meet the conventional loan standard, don’t fret. The Federal Housing Administration (FHA) has loans for people buying homes for the first time whose scores are rather low. Down payments through those loans can drop to 3.5%.

Your Debt-to-Income Ratio

The calculation of this is fairly simple: recurring monthly payments (car, credit card, student loans, etc.) divided by gross monthly income.

Your Source of Income Is Stable

While the way of earning a living has shifted from the traditional ways, needing a consistent and steady income stream for home loan qualification has not. Stable incomes are generally classified as a paycheck from an employer for at least two years. In terms of final earnings, there should be no fluctuation of over 25% within a year.

If you’re self-employed or have had several employers, hope is not lost. Just prove that your career is still moving forward within the field you’ve chosen. More importantly, steadiness in yearly income (or better yet, growth) should be clear. The amount of the earnings is also part of the equation. Total monthly housing costs (insurance, mortgage, taxes) must not surpass 28% of the gross monthly income.


Buying a home is one of the most important milestones in a person’s life. It’s important to be financially stable before taking on such a huge step. Signs of being financially stable enough to do so include a stable source of income, a good credit score, and a good debt-to-income ratio.

Are you looking for a reliable house payment calculator? Get in touch with paloRATE today! We aim to provide home loans to our clients in Washington while providing them with competitive interest rates and closing costs.