Buying a House
Understanding the Home Buying Process
Buying a home can be a nerve-wracking experience. But the decision to buy is a smart move financially. Home ownership is a wise investment, as you can earn tax deductions while building equity.
So many choices: what to consider
Before looking at homes, consider what you want in a home, who will live there, how long you’ll stay there and if your needs will change during that time.
If you intend to keep the home less than three years, consider resale qualities that will help you sell your home faster in a buyer’s market, including light-colored carpeting, neutral-colored walls, a modern kitchen and bathrooms and a multi-car garage.
Don’t break the bank!
to set up an appointment with a one of our loan officers to determine the value of the loan you'll qualify for.
Determining How Much You Can Afford
Fewer than 10 percent of homebuyers purchase their homes with cash, so chances are you’re going to need financing. Anyone can get a mortgage loan, but not everyone can get a good mortgage loan. The best way to get a low interest rate (and to avoid a default later!) is to not borrow more than you can afford.
Here’s how to figure out a reasonable amount:
Calculate Your Debt-to-Income Ratio
The general rule of thumb is that your mortgage payment should equal no more than 28 to 33 percent of your gross income. And your total debt (i.e. your anticipated mortgage amount plus your car loan, credit card balances, etc.) should not surpass 36 percent of your gross income.
Determine Your Down Payment
Look at how much cash you have saved up for a down payment. The larger the down payment, the lower your monthly payments can be.
Map Your Budget
Use a budget worksheet to determine how much income you can spare each month to put toward a mortgage payment. Simply subtract your expenses from your total income.
Do a “practice run” for two months by saving the difference in your anticipated monthly mortgage payment — don’t forget to add 15% for taxes — and your current rent payment. See if you can maintain the lifestyle that you are accustomed to while not neglecting savings activities such as college funds for the kids or your IRA. If you find yourself falling short you may want to consider a smaller mortgage.
Increasing Your Borrowing Power
Here are some tips to help you make the most of your money:
Don’t Deplete Your Savings
Lenders often look at your cash reserves. They don’t want you to empty your savings accounts in order to afford your mortgage payments. For this reason, avoid making other major purchases in the year you plan to buy.
Borrow with a Co-signer
You may be able to borrow a larger amount or get a lower interest rate if you borrow with a co-signer. Consider this option carefully. You will both be held responsible if you default on the loan.
Track the Current Housing Market
Look at the current buyer’s market and interest rates. Are rates increasing or decreasing? The lower the interest rate, the more home you can afford.
Patch Up Bad Credit
Get a copy of your credit report from each of the three credit bureaus (see below). Make sure that there are no mistakes on it that could cost you — or even prevent you from getting financing. Pay all of your creditors in full and on time for at least a year before you want to get a mortgage loan. And try to avoid changing employers. The better your credit rating, the more you’ll be able to borrow — and at a better interest rate.
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