Some renters may be unaware that they are "mortgage-ready." Here's how to determine their readiness.

• In 2022, approximately 48.6 million American families did not own the homes they lived in, according to estimates from the American Community Survey by the U.S. Census Bureau.
• Zillow found that approximately 7.9 million families who did not own their homes were considered "income mortgage-ready."
• If you have a good financial position, there are two things to consider before making a purchase.

Are you ready to buy a home? Many renters have no idea.

According to a new analysis by Zillow, millions of renter households in 2022 would have been able to buy a house that year, based on estimates from the American Community Survey by the U.S. Census Bureau.

In 2022, 39% of the 134 million families in the U.S. did not own the home they lived in, according to Census data. Among those who did not own their home, about 7.9 million families were considered "income mortgage-ready," meaning they could afford to pay no more than 30% of their total income towards a mortgage payment for the typical home in their area, Zillow found.

On the other hand, households may be unaware that they can afford a mortgage, according to Orphe Divounguy, senior economist at Zillow.

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It may be wise to consider purchasing a home if your current housing lease is about to expire, advised Melissa Cohn, the regional vice president at William Raveis Mortgage.

"If rental prices are increasing, perhaps it's a suitable time to contemplate purchasing," she remarked.

Understanding the worth of getting all the paperwork together is the first step, said Cohn.

Before going into a crucial conversation, it's important to have a working familiarity of crucial facts like annual income and debt balances.

Begin by assessing your credit standing and calculating your debt-to-income ratio.

1. There's 'no harm' in checking your credit

To determine if you're prepared to purchase a home, it's crucial to comprehend your buying power, according to Brian Nevins, a sales manager at Bay Equity, a Redfin-owned mortgage lender.

Some potential homebuyers may be unaware of their credit status or hesitant to check it due to a misconception that it will negatively affect their credit score.

It is advised by experts to monitor your credit for several months prior to purchasing a home in order to make any necessary improvements.

"Our industry has undergone significant changes, with soft credit verifications now being conducted upfront, which has no impact on an individual's credit score," stated Nevins. "It's important to note that there is no harm in conducting these verifications."

Your credit score influences lenders' decisions to approve or deny loans, and the higher your score, the lower the interest rate you receive.

Being "credit invisible" can make it difficult to buy a home, but managing your debt-to-income ratio and keeping your outstanding debt in check can help you get approved for a mortgage.

2. Debt-to-income ratio

A high debt-to-income ratio is the primary reason why mortgage applicants are rejected, according to Divounguy. In essence, lenders believe that the applicant may struggle to make mortgage payments while also fulfilling their existing debt obligations.

Determining a practical budget while shopping at home requires calculating your debt-to-income ratio.

"According to Nevins, your debt-to-income ratio is the total monthly debt you pay, including car payments, student loans, credit card minimum payments, and estimated mortgage payments."

To determine your hypothetical budget, you can follow the 28/36 rule, which advises that no more than 28% of your gross monthly income should be spent on housing and no more than 36% of that total on all debts.

Nevins stated that sometimes lenders can be more lenient and approve applicants with a debt-to-income ratio of 45% or higher.

If someone earns a gross monthly income of $6,000 and has $500 in monthly debt payments, they could afford a $1,660 a month mortgage payment if they follow the 36% rule. If the lender accepts up to 50% DTI, the borrower may be able to take up a $2,500 monthly mortgage payment.

Most loan programs have a maximum approval limit, according to Nevins.

The affordability and financial readiness for buying a home will be influenced by factors such as the median home sales price in your area, the amount you can contribute towards the down payment, property taxes, homeowner's insurance, and any potential homeowners association fees.

A mortgage professional can assist you in "outlining" all the factors to consider before purchasing a home, as stated by Cohn: "They provide individuals with milestones, such as what is required to qualify for a mortgage."