First-Time Homebuyer? How to Tell If Youre Ready

Hows your job? Love your work and see yourself staying put for the next 10 years? Or do you dread the commute, hate what you do and frequently scan job boards? Oh, and hows your love life?

If a far-away job beckons or you decide youre ready for marriage after all, you dont want to end up yoked to a home you really shouldnt have purchased. Before buying, youve got to take a serious self-inventory, including asking yourself some not-so-obvious questions.

Before you buy, think of selling

The career and relationship questions might seem obvious, but when you consider moving into your own home, youve got to probe even deeper. Does your career path mean you need to maintain a bit of mobility? Could a promotion or career advancement in the next five years mean youll have to relocate? If so, maybe youd better keep on renting. Or if youre planning to start a family, you might outgrow that starter home before you know it. Better look for something bigger -- and check out the school district before buying.

Its all about determining your first homes shelf life. Before you buy, think about selling the home youre considering:

• How is the neighborhood? Will potential buyers love the area as much as you do a few years down the road?

• Is the local real estate market on the upswing?

• What kind of development is going on nearby? Commercial, retail, residential -- or is that a multi-stack highway interchange theyre building over there?

• Does the home have a quirky location or features you dont mind but that might turn off future buyers?

Also worth thinking about: Your starter home may serve as a passive income provider in the future. Consider how the property might work as a rental unit.

Its how much you can afford, not how much you can borrow

A lender will tell you how big a loan youll be eligible for when you prequalify, but thats not necessarily what you can afford. Youll want to leave room in your budget for the one-time and recurring expenses of homeownership.

Everyones financial situation is different, but many conventional lenders use the following formula to determine how much home a buyer can afford: Your house-related payments (mortgages, taxes, insurance) shouldnt exceed 28% of your pretax income, and your total monthly debt obligation shouldnt exceed 36% of your monthly pretax income. (Government-backed loans tend to be a bit more flexible.)

But before you rush to a mortgage calculator to see how much house that will buy, remember to consider that your monthly note will likely include more than just principal and interest -- there are also taxes, insurance and other expenses that will have to be accounted for.

What lenders consider

In the process of determining whether to grant you a loan, lenders will look at how much debt you have compared to how much money you make. Its called the debt-to-income ratio, or DTI. The formula looks like this:

Total Debt / Gross Income = Debt to Income Ratio

Say you pay 7,200 toward all your debt each year; thats 600 a month. If you make 60,000 per year, or 5,000 per month, your debt-to-income ratio is 12%. As we mentioned above, conventional lenders generally want to see an all-in DTI of 36% of your gross income or below -- including your house note -- but some lenders will allow for wiggle room on this, and if they determine you have the ability to repay, they may go above this watermark.

In the above scenario, that leaves 24% of your annual salary available for your housing expenses (36% minus 12%), or 14,400. Your mortgage note would need to be around 1,200 per month. Youll notice in the chart above that the 60,000 income allows for a monthly payment of 1,400, so were close. Remember, youll still need to allow for insurance and taxes.

The power of rational thinking

When youre ready to put down roots and cant imagine living anywhere else -- thats when you realize wanting a house is an emotional decision. But buying a house should be a deliberate, rational process, and a key part of such an important financial decision is figuring out the numbers. Thats where NerdWallet can help.

This article originally appeared on NerdWallet.