Over the last few years there have been countless people that have been scared away from the housing market. We have all seen the foreclosure numbers and seen the volume of homes being purchased declining, which has steered many people away from purchasing a home, and has made renting seem like a much more viable option. However in hindsight, if you are financially secure now is the perfect time for you to enter the market, especially if you are a first-time home buyer. The market will definitely back as the economy continues to rebound, and this is precisely how many people made their money when the last boom hit. They had purchased homes when the market was down and sold when it was hot: the classic buy-low sell-high strategy.
When you decide that you are ready to buy your first house you need to understand what your budget is going to be. This can get you on the road to purchasing your home by searching in the right market before you have to finish your mortgage application. This should take a little bit of the edge off when you first start weighing all of your home options. You do not have to worry about being rejected by a bank or undergoing that embarrassment, if you can come up with an idea of what you can afford on your own.
First, you need to look at the debt to income ratio that you currently have. This is what your mortgage company is going to start with. This will be a complete list of debts that you currently have including credit cards, student loans, car payment, and so on. What this explains to the mortgage company is what percentage of your income is being paid on current payments each month. Don’t be frightened by this number it is essential on getting you started with this process.
With the recent struggles in the housing market the numbers have changed. If you are spending more than thirty-six percent of your income on current debt, you will have little chance of getting a loan. Most companies will be looking for up to twenty-eight percent of your income to be used towards your mortgage. This makes it feasible to pay that mortgage payment each month and as much as you want to purchase a fully finished home that is ready to go, it might not be possible for you at this time.
So what do you need to do to calculate this amount? First you are going to need to find out the total amount of income in your household before any taxes are assessed. For married couples, this should be the combined income of both individuals. You take this number and multiply it by thirty-six percent, or 0.36. Take the answer and put it off to the side. Now take all of the current bills you are paying per month and add them altogether to calculate how much you are currently spending per month. Subtract that number from the sum that you wrote down before (your total income), and that is the number you should be able to pay per month for your mortgage, including taxes and all insurances.
Of course no bank is required to give you a loan that will match that amount, but it will give you a good foundation for loan applications. This is mostly for your own use when starting the process of purchasing a home.
Tips for First Home Buyers
Before you buy into the ‘American Dream’ there are a lot of aspects of home buying that you need to take into account. Buying a home isn’t an only investment; it is also a lifestyle purchase.
When you think about buying a home, you will want to make sure it fits into the type of lifestyle that you would like. Do you want a house in the suburbs close to schools or would you rather live in a more fast-paced urban area? Do you want to live near the mountains or the beach? If you work at home, then you may want to make sure there is an extra room for a home office. If you dream of having a lot of dogs then make sure you get a decent backyard so they can get plenty of exercises. Before you go through the process of acquiring a home, you will want to make sure you want to live in awhile so make sure it is located where you want to be and that it will fit the needs and desires of your lifestyle.
How Much can you Afford?
Once you have figured out what type of house you want and where you want it to be located, then you will need to figure out how much you will be able to afford on a monthly mortgage. When you go to get a loan for your mortgage your other loans will be taken into account as well. The final cost of all your loans, including the mortgage you are applying for, should be no more than 36%. For the sake of making this simple, it means that if you made 1000 dollars a month then your payments for your car, student loans, and housing cost should come out to about 360 dollars per month.
You will also be required to have a down payment. This down payment is generally somewhere between 10 and 20 percent of the loan amount you are looking for. If you don’t have this yet, then you aren’t ready to buy a house with a traditional mortgage and should work on saving up for your down payment some more. There are also rent to own homes that you can get. However, you will want to ask around to make sure you are getting a good deal.
Extra Costs and Home Maintenance
If you have the down payment and can afford the monthly payment for your home, then you will want to get homeowners insurance. You can call around and find out how much this is going to cost you so that when you acquire your new home, you can start your policy right away. There are also going to be costs to maintain your house and do common repairs. You will want to set aside a fund for this so that you can be at least somewhat prepared for this to happen. If you don’t take care of routine maintenance on your property the value is going to go down, and you will lose money on your investment.
Since this is your first time buying a home, it is a good idea to work with a broker. Brokers can prove to be a valuable source of information in this market and will help you a lot when it comes to making important decisions. They can also spot good deals that you may not have found on your own. If you’re not sure how much you can afford you can always go into your local bank and talk to them. Try to prequalify for a loan to see how much you are going to be eligible for. You can use the powers of communication to your advantage in this area because if you talk with people honestly about your situation, goals, and desires, then they can help you get what you want or at least lead you down the right path to getting just that. If you aren’t financially stable enough yet to afford to buy a home, then don’t worry because you are not alone.
Make sure you don’t rush the process of buying your first house. Plan out what your financial moves are going to be so that you can live the ‘American Dream’ too.