Ready to Purchase a Home?
Owning a home is a goal many have. But are you truly ready for the responsibility that comes with home ownership?
Are you ready?
First, let’s talk about your income. Do you have two years of steady regular income and employment? Lenders require proof that you can handle the financial obligation that comes with a mortgage, having two years of steady reliable income demonstrates that you might be able to handle this responsibility. If you are self employed, be aware that claiming too many deductions can cause your income to appear lower than it actually is and could prevent you from purchasing a home.
Next, is credit. Do you have a good credit score? Your credit score shows, based on your credit history, how likely you are to repay a debt. Lenders typically require a minimum credit score of 620, unless you have a large down payment. Furthermore, your credit score can affect your interest rate. Consequently, having good credit will make it easier to qualify for a loan and help you qualify for lower interest rates saving you money over the life of the loan. If you aren’t sure what your credit history shows, you can receive a free copy of your three credit reports at www.annualcreditreport.com. You will want to check each report for errors and take steps to fix them prior to applying for a mortgage.
Finally, how much debt do you have? When lenders are determining your ability to pay they want to be sure that your income is enough to cover your mortgage payment and all other monthly debt. Therefore, the amount of debt you owe can have a significant impact on how much home you can afford. Prior to applying for a mortgage pay down debt and credit cards.
Do you have a down payment?
Many home buyers hope to qualify for 100% financing or down payment assistance. However, even if you qualify for these programs you will have to pay for your earnest deposit and home inspection upfront.
The earnest deposit accompanies the offer to purchase a home. This deposit tells the seller you are committed to purchasing their home. The amount of an earnest deposit varies from 1% to 10% of the purchase price.
While you are not required to have a home inspection, it is in your best interest to have one conducted. A home inspection is the only way to know the true condition of the home. It is an expert opinion of the condition of the home and will list any defects or repairs needed. Having a home inspection conducted can prevent you from purchasing a home that needs costly repairs. The cost for a home inspection varies based on the size of the home and the inspections conducted.
It can seem like it’s impossible to save money for a down payment on a home. Still it will help you achieve your goal of becoming a homeowner. Especially as most lenders generally will not lend you the full purchase price of a home. The lowest down payment is typically 3.5% of the price of the home. Many lenders require you to put 5% down. Furthermore, if you are unable to put down 20% your lender will generally require private mortgage insurance (PMI) increasing your monthly costs.
Can you afford the extras?
Owning a home is a big responsibility. When you own a home you are responsible for any necessary repairs, property taxes, and homeowners insurance. In addition to your basic necessities such as groceries, electric and water. While your principal and interest payment might be fixed, property taxes and homeowners insurance costs can vary from year to year. If your home value increases it is likely your property taxes will too. Prior to purchasing a home ask yourself if you can truly afford these costs, especially if they increase.