What’s your benchmark for financial independence? Most women have an internal checklist for “making it”: your salary, bank account, or investments hit a certain number. Your vacation plans are on the calendar, not just your Pinterest board. But if you dig a little deeper, those are side effects of being financially comfortable, not necessarily indicative of financial independence. It’s a vibe check–and a good one–but a good way to know if you’re financially independent is to put it to the test.
Specifically, could you own a home on your own?
No matter if you’re saving for a home, married and on the mortgage, or on team I-want-to-rent-forever, finding out if you can qualify for a home loan on your own is a good indicator of financial independence. And if we want to figure that out, we need to dig into what it actually takes.
Don’t Get Stuck On Your Income
Repeat after me: income isn’t the same thing as financial independence. Is high income a powerful tool? Yes. So is the jeweler’s saw I got to use in my metal jewelry art class, but that doesn’t mean I’m gonna reach for it next time I need to mow my lawn. Context matters, especially to lenders. They care much more about how your income is used within your whole financial picture.
Lenders don’t care how impressive your title is or how hard you worked for your salary. They care about your debt-to-income ratio, which is the percentage of your gross monthly income that goes toward debt payments. Most conventional loans expect that number to be below 36%, and the lower, the better. A six-figure salary feels independent until you factor in six figures of student loans, a car payment, and a few credit card balances.
Good Credit Is More Than Your Credit Score
Your credit score is basically just a track record of how you handle financial commitments over time. For mortgage qualification, most conventional lenders want to see a score of 620 or higher, and the best rates generally go to borrowers with scores exceeding 740.
But beyond the score, lenders are looking at things like how long your accounts have been open, how much of your available credit you’re using, if you’ve missed any payments or experienced foreclosures, and what types of debt you carry. Even deferred student loans can impact your eligibility. If your credit needs some TLC, check out these tips to improve your score. Even if you’re not buying a house any time soon, or at all, it’s a good habit to get into.
Own a House Already? Think About How It’s Titled
It’s rarely as simple as “I’m a homeowner.” Do you have sole ownership, joint tenancy, tenancy in common, or community property? Each structure has different implications for what happens to your home if you divorce, become incapacitated, or die.
For example, some states operate under community property law, meaning assets accumulated during marriage are, for the most part, considered to belong equally to both spouses. So if you got divorced after buying a house together, it would be split 50/50–even if yours is the only name on the title. Tough luck, especially if you provided the down payment. And that’s just the tip of the iceberg. Your title status also impacts who your home passes to after your or your partner’s death and whether or not it has to go through probate first. So if you’re tallying up your assets, either for an estate plan, finding financial independence after a divorce, or just to know where you stand, it’s important to understand the legal implications of your home title.
Think About How Much Cash You Can Easily Access
Qualifying for a mortgage isn’t only about income and credit. It also requires cold, hard cash. Lenders want to see that you can afford a down payment and closing costs with enough left that you won’t have to live on beans and rice the second you get the keys.
If your 401(k) is six figures, but your savings account looks like you’re a college student, you’re not financially independent. You need assets you can actually access, not just assets that look good on a net worth statement. Do you have enough to be okay if your car bites the dust? What if you get laid off? If not, it’s time to bulk up your emergency fund.
Who Foots the Bill If You Can’t?
Financial independence isn’t just about your lifetime. Think about what happens when you’re gone. Is there debt leftover that someone else will have to take care of? Take it a step further–what if you become incapacitated? What happens to your home loan then?
Owning a home is just like owning any other asset in the sense that it needs to be protected through thoughtful estate planning and insurance coverage. Otherwise, it’s just a liability waiting to hit you, or worse, your loved ones.
Making It Happen
So you’re not in the market for a house, but you thought you were financially independent, and now you’re questioning that. If it feels like you have a few gaps to fill, I have some great news for you: financial planning is for people who have gaps to fill! Let’s talk about where you’re feeling vulnerable and make a plan you can feel good about.
Or, you’re here because you’re shopping for a home or thinking you might head that way soon. What next? Download my checklist, “What Should I Think About Before I Buy a House?” to make sure you ask the right questions and think through the things your realtor and lender won’t bring up.
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