It’s the biggest decision you’ll make in your life. You know that it is what you want and you know that owning a home is a solid financial decision for most people. But is now the right time? How can you be sure you won’t find yourself struggling to make a payment in a year or wishing you waited?
The first step is to realize that investing in real estate is nearly always a good deal because it builds value in the long term. If you aren’t sure it is the right decision for yourself financially, you’ll need to determine that based on facts.
These FIVE questions can help you to get to that point:
1. Do You Have a Down Payment?
Not all mortgage loans require a down payment, but in nearly every situation it’s an important investment. When you make a down payment, you reduce the amount of money you borrow to buy the home, reducing your monthly payment and the overall cost. Additionally, the larger your down payment is, the lower your interest rate may be.
FACT: FHA loans are not just for "first time" home buyers. FHA mortgages are an option for many types of borrowers.
Conventional loans often require a 20 percent down payment, but FHA loans accept as little as 3.5%. Well in advance of looking at homes, be sure to work with a reputable mortgage professional to help choose an amount that gives you the most flexibility.
2. What Is Your Credit Rating?
Next, take a look at your credit rating. After verifying that your credit report is accurate, request your credit scores. Typically, the higher the credit score, the less you’ll pay in interest on the loan.
If your score isn’t what you want it to be (good or better in most cases) it may be best to work on it for a few months before trying to secure a loan.
The difference could mean thousands of dollars over the lifetime of your loan. This is another reason to connect with a trusted mortgage lender sooner than later -- listen to their advice!
3. How Much Can You Afford Each Month?
This is where it all comes down to for many people. Can you make that monthly mortgage payment? Consider these steps to determine what you can expect to pay:
- Determine what your take home pay is each month.
- Work with friends that live in the area to determine what your monthly expenses could be for utilities. Look for people who own the same size home as you plan to buy.
- Learn how much annual taxes are for the area.
- Factor in other expenses you have such as student loan payments, credit card debt, car loans, and day-to-day expenses.
- Then, compare your expenses to your income. Does it leave you with plenty of money to afford the mortgage payment as well as to put money into savings?
4. How Much Savings Do You Have?
Aside from your down payment, you’ll want to go into homeownership with a sizable amount of savings to cover any needs that may arise.
Be sure to estimate any renovations you may need to do. And, consider emergency situations. Though the amount of savings you have is dependent on your lifestyle, it is often considered acceptable to maintain three to six months’ worth of income in a savings account or other tool.
5. What Are Your Long-Term Goals?
Here’s another important factor. Are you planning to buy a home you’ll live in for three to five years or longer?
It can be hard to flip a home and get back what you put into it for any less than that amount of time. Work closely with your real estate agent to ensure you are buying the right home for your long-term goals based on family size and your expectations for the coming years.
Can You Afford a Home?
Sometimes, it can be hard to learn all of the details of home buying. Work closely with your real estate agent & lender to put together a budget and expected mortgage so you can make the best buying decision for your needs. #hw