Are You Ready to Buy a House
Buying a home has been called the American Dream. It can sometimes be exciting and also scary. For many it's the next chapter in life, putting down roots. Because of the enormous undertaking of purchasing a home, buying the biggest purchase most people will ever make. Not knowing how much of a mortgage loan you will qualify for, how much of a down payment is needed and other expenses to become a homeowner. That is where an experienced Real Estate Agent can help navigate you through the home buying maze.
How Much Income Do You Need
How much income does someone need to purchase a home? Once you have made the decision to purchase a home, found a Real Estate Agent the next step is to talk to a Mortgage Lender about getting pre-approved for a home loan. This pre-approval will not only have the amount they qualify for but also the terms of the loan, down payment, reserves, type of loan and more. Typically for someone who is not self-employed the Lender will want at least your last two years of tax returns, pay stubs as proof of income, bank statements for the pasted 60 days and they may ask for other documentation.
For those who are self-employed getting a loan my be extra challenging. For self-employed people the lender will typically want two years of bank statements to verify earnings. In addition to this documentation the Lender may request other documentation.
How Long do You Intend Staying in the Area
Buying a home is a huge decision and something to consider is, how long do you intend staying in the area? Are you going to raise a family or retire, how long will my job remain in the area? Buying a home is a long-term investment according to the National Association of Realtors. In the pasted decade most U.S. homeowners live in a home around 13 years. If you plan on living in the area for a few years, buying a home may not be for you. With the costs of selling a home it may not be a good financial consideration.
People who have demonstrated over time being able to manage their debt will most likely get better terms on a home loan. Those who pay monthly debt on time and use credit wisely will have a higher credit score and appear less risky to a lender. Those with little or no credit history may not be able to obtain a home mortgage. But people with little or no credit history can start by building up their credit score over time.
In addition to the borrowers credit score, lenders will also look at there debt-to-income ratio or DTI. The DTI is the borrowers monthly income (including the new mortgage) gross monthly income and the lender will determine the ability to repay the money borrowed. As a rule of thumb most lenders are looking for a DTI of around 28%, but some may accept a DTI as high as 50%. The lower the borrowers DTI the more they will be comfortable with the new mortgage payment.
For those considering purchasing a home an emergency fund is optimal and can defray unexpected expenses. Home often require maintenance and repairs. Experts recommend having an emergency fund of 3 to 6 months or more of expenses.
Depending on your circumstance coming up with a down payment to purchase a home may be difficult. Ideally for a Conventional Home Loan putting down 20% of the purchase price will eliminate mortgage insurance. Mortgage insurance is an insurance policy paid by the borrower that protects the lender or title holder if the borrower defaults on payments, dies or is otherwise unable to meet the obligations of the mortgage. But many mortgage lenders do have programs allowing borrowers to put less than 20% and pay mortgage for a specific amount of time.
An FHA Home Loan requires the borrower to only put down 3.5% of the purchase price with the seller contributing 3.5% to closing costs. The FHA loan is typically for first-time-buyers those with little savings. The downside to an FHA Loan is the mortgage insurance stays for the entire length of the loan.
Veteran Affairs or VA Home Loans are for Military Veterans who qualify or their surviving spouse. The VA finances up to 100% of the homes value with no money down, no appraisal fee and no mortgage insurance. However for Veterans with less than a 10% disiblliety through the VA there is a 1% of the purchase price funding fee.
USDA Home Loans are for property located in a rural area designated by the U.S Department of Agriculture. These loans are available to most borrowers and the homes location must qualify. Check USDA eligibility
** Before deciding on what type of loan is best for your circumstance ask for specific details of your loan from your Mortgage Professional. **
How much can you Afford
Before shopping for a home it is important to know how much house you can afford with your monthly payments, closing costs, insurance and estimated taxes. Using a mortgage calculator can give you an idea of how much home you can afford. You are able to input information such as purchase price, down payment and interest rate to get an idea of your monthly mortgage payment. As a general rule most financial experts recommend the 28/36 rule. If you should spend only 28% of your gross monthly income on mortgage payment and 36% on total debt.
Are you Willing to be a Homeowner
In addition to being comfortable with your financial agility to pay a mortgage, does a home fit your lifestyle? Will the cost of a mortgage allow you to continue doing things you enjoy. Maybe you enjoy eating out every weekend, going on a vacation. These are questions you will have to ask yourself if buying a home means cutting out things you enjoy or are unwilling to give up. For more information about becoming a homeowner contact Allen Deaver of Asset Realty.