Are You Ready To Buy Your Dream House
Buying a home is both exhilarating and scary. It means you are setting down roots and ready for the next chapter in life. On the other hand, it also means you’re taking on the largest debt you’ll possibly ever have to pay.
The financial realities of preparing to buy a home can come with a lot of stress, uncertainty, and questions: will I qualify for a loan? How much will I qualify for? Do I have enough for a down payment? The list goes on.
According to Glenn Brunker, president of Ally Home, learning as much as possible about the homebuying process before making a decision will help you feel comfortable with the investment you’re about to make. Knowledge is the best way to avoid unexpected costs that can turn your dream home purchase into a nightmare.
How To Know If You Are Financially Capable?
1. Do you have a stable income?
This may sound like a no-brainer, but figuring out how secure your income is can be deceptively tricky to determine, especially with the economic impact of the COVID-19 virus. You should not only feel comfortable that your income is secure for at least the next few years, but also be able to demonstrate a history of stable employment in the past.
Lenders will ask to see at least two years of tax returns or pay stubs as proof of income. Lenders also like to see the money you will use for a down payment deposited in a bank account for at least 60 days. It tells them you have the money to finance your mortgage. If you’re depending on gifts from family and friends to help with a down payment, make sure you get it well before you apply for a mortgage and deposit it.
2. Do you want to stay in the same area long-term?
Are you looking to buy in an area you envision living in for five or more years? Raising a family? Growing old? Consider: “Do I see myself living in this home, in this geography? Will my job remain in this geography over the next two, three, four years?” notes Brunker.
A home is a big long-term investment. According to the National Association of Realtors, the median length of homeownership in the U.S. is 13 years and the typical tenure has been going up over the last decade.
3. Are you comfortable managing debt?
People who have a demonstrated history of being able to manage their debt are more likely to get more favorable terms on a home loan.
Paying your monthly debts on time and using your available credit wisely will lead to a higher credit score. The higher your score the less risky you appear to a lender, which in turn will qualify you for a lower interest rate. A good credit score according to FICO is 700. For the best rates, however, a score of 740 or higher is needed.
For those who have no credit history — sometimes known as a thin file — it may be impossible to obtain a mortgage. To start building a responsible credit history consider a low limit credit card or a secured loan.
4. Do you have an emergency fund?
An emergency fund can tide you over if you are out of work or help defray the cost of unexpected expenses. Most experts recommend having enough cash to live on for three to six months in a savings account — and homeowners may want more.
Homes require maintenance and repairs, especially when buying older homes that may need upgrades. Being able to buy the house but then not have the money to repair it will only make your financial situation worse.
5. Do you have enough cash for a down payment?
You may have heard that in order to buy a home you need to have 20% of the purchase price for a down payment. But according to Banfield, needing to put 20% down on a home is “a modern-day fallacy.” Many lenders will accept down payments as low as 3%. In fact, the average down payment in 2020 was 6%, according to Rocket Mortgage.
Does the home need a lot of work? Do you need to buy appliances, install new carpeting, or repair a roof? A smaller down payment may be necessary to avoid taking out another loan or wracking up a credit card debt. The right home improvements can also make your home more valuable and increase your equity.
6. Do you know how much you can afford to spend on a home?
Knowing how much house you can afford means having a clear idea of not only how large your monthly payments will be, but also closing costs, insurance, and taxes. Compare how your current housing costs relate to a new mortgage payment, whether you’re upgrading to a new home or a renter looking for your first home.
Most financial experts recommend the 28/36 rule when determining affordability. This means that you should spend only 28% of your gross monthly income on mortgage payments and 36% on your total debt.
7. Are you willing to make sacrifices to become a homeowner?
Kennedy believes that in addition to being comfortable with your financial ability to pay a mortgage, you should also consider how a home fits into your lifestyle.
For example, do you like eating out every weekend? Do you go on vacation every year? Will the financial cost of a mortgage allow you to continue doing the things that make life fun? Does buying a home fit into your future plans like starting a family or a business?
Let Us Help You in Buying a House
If you are a first-time homebuyer and you have no clue about the steps on how to buy a house, you can reach us at www.ronsellsthebeach.com, our website, or call us at (386) 871-7697. Our agents are well-trained and fully capable of answering any concerns that you may have about buying a new house. Let us make this real estate transaction as easy as a day at the beach!