Posted on: Tuesday, February 2nd, 2016 // under
How are you doing with your New Year’s resolutions? Is homeownership on that list? Have you found yourself wishing you could be investing in a place of your own instead of paying a monthly rent check to someone else? Is 2016 the year you decide to buy a home?
Maybe you want the freedom to paint and personalize your own place. Maybe you’ve seen the studies that show that homeowners are, over the long-term, wealthier and healthier than renters. Whatever the reason, maybe 2016 is your time to buy a home.
But buying a home is a big deal. Small mistakes can cause big headaches.
One of the first things that a mortgage lender will do is check your credit report. They’re looking to see how well you manage your money and to estimate the amount of money they might be able to loan you. While a credit score is not be a perfect predictor of how well you’ll pay your mortgage, it does give your lender insight into how well you’ve managed to pay your bills in the past.
Don’t worry. Perfect credit is not needed to buy a home.
When you apply for a mortgage loan, your lender will calculate something called your “housing ratio” and your “debt-to-income ratio.” (Insider tip: these are also called your front-end and back-end ratios). They’re looking to make sure that your full mortgage payment – that includes principal, interest, taxes and insurance doesn’t eat up too much of your gross income, especially if you have any other long-term or revolving debt.
Keep in mind that your lender may be willing to loan you more than you’re comfortable borrowing. A Homeownership Advisor can help you decide your comfort level for taking on homeownership debt. Even if you have had some credit issues in the past, we can help you sort them out and get on the road to homeownership.
Once you decide to take out a mortgage, you need to be able to pay it… for many years. Lenders like to see that you have a stable income – one that hasn’t changed much in the past two or three years.
The Center recommends that if you’re thinking of making a career change, or going back to school – something that may mean spending money or taking a cut in pay – You might want to stay flexible and rent for a while longer. If you work in a field with frequent layoffs, you might want to keep your savings easily available too.
You may have heard about all the changes in the mortgage industry over the past few years and think you need to save 20% or more to buy your first home. This isn’t true. The reality is that there are quality mortgage programs out there – from reputable lenders – that will allow you to buy your first home with much smaller amounts, as low as 1 to 3%.
Your Homeownership Advisor can also work with you to see if you qualify for any down payment or entry cost assistance programs.
Be aware, most lenders will also want to make sure that you aren’t using all of your savings to purchase your home. They may require you to have money in savings even after you close. If you need every penny you have to purchase a home, you might be over-extended.
Homeownership is a long-term investment. Selling a home costs money. “You don’t want to find yourself in a situation where you need to sell in the next year or two, but you don’t have any equity” [PERSON] advises. So, if you think your career or personal life might make you want to move sooner rather than later, you may be better off renting for a while longer.
You’ll need the know how to fix things yourself. Or make room in your budget to call the plumber, exterminator, electrician, or other professionals when things go wrong. Eventually, every major system and appliance in a home will need to be replaced… even if you were to purchase a brand new home today.
We recommend saving at least 1-2% of your purchase price every year. This will help you cover upkeep and maintenance. That means that if the home you buy costs $100,000, you should save between $1,000 and $2,000 every year.
Some years you may not have any expenses, other years may drain those savings. You never want to max out a credit card or fall behind on your mortgage because you had to pay a plumber to fix a leak.
Would you like to know more about what it means to be a homeowner? Learn insider tips and tricks to be successful? Take a homebuyer education course – the Home Stretch homebuyer workshop or online via Framework® partner.
Your homebuying success is our mission. Learn more about how to be a successful homebuyer here.