There are many of us who rent apartments or homes but we'd rather be paying a mortgage because it means we are building equity on an investment. But with all the mortgage and credit issues in our nation's economy, how do we know we're making the right decisions? With so much job insecurity, how do we know we can afford a mortgage? Can we afford the added expenses of home ownership like real estate taxes, water bills (if you're not paying for water now), and home improvements? There are so many legitimate questions that people have regarding home ownership today.
The first step in determining if you're ready to purchase a home is to meet with a mortgage lender. She or he will review your credit score, income statements, bank statements, and tax returns and determine a pre-approval amount. This is the maximum amount the lender is comfortable in giving you based on your financial credibility. The lender feels confident that you can repay this amount. Unfortunately, you can't get a real perspective on how much you can afford without supplying all of this information to the lender. Don't worry - they honor your privacy and they won't ask you for anything that's not going to help them help you in the best way possible.
One of the measurements your lender will assess is your debt-to-income ratio. This is the ratio of your debt compared to how much money you bring in. The lender will determine if the debt you have eats up your income or if you have relatively low debt compared to how much income you make. Generally, if you are paying more than 40-50% of your income towards debt payments each month, you are not in the best position to purchase a home. Depending on the lender, he or she may feel that the mortgage is at risk of not being paid because there are many other debts to pay each month. Don't worry! The lenders will develop a financial game plan with you. This game plan will help you to reduce your debt and prepare you to purchase a home.
Let's talk about me for a minute: I'm currently renting an apartment.
*Cars come screeching to a halt*
"What??? But Manoj, you're a Realtor!!! You shouldn't be renting!"
Well, trust me...I would love to stop renting but I know I can't get the home I really want until I build up more savings. I don't think you need to own a home to help people buy one - just like you don't need to own a Honda in order to sell one. You just need to be educated on the product/service in question and how to service a client in need of that product/service from start to finish.
Remember, I'm a young professional like many of you and I have to build up to the point where I can actually purchase a home. Plus, real estate agents make their living off of people who make decisions to buy or sell homes. If they don't make those decisions, we don't get paid. Although we are in the business of homes, we may not be able to afford them because we don't get paid a salary or hourly wage like most of you - we are paid strictly on commission. No decisions = no income. See what I mean?
Anyway, when you keep reading you'll find a list of action items you'll want to accomplish as you're in the process of purchasing a home. These are meant to be a general overview and not a comprehensive list. If you have any questions, just leave a comment and I'll address them for you.
Steps to follow:
- Make sure you are pre-approved for a loan before beginning your search for a new home. This ensures you know the maximum price you can pay. You don’t want to fall in love with a home and then find out you can’t afford it! (I know some great lenders - just ask!)
- Get connected with a REALTOR®. They have access to current, non-public information that will be vital to your home search. Choose a professional who is dedicated to serving your needs before, during, and after the sale. (That's me! Shameless plug, I know...)
- Don’t think there is only one home out there for you! Buying a new home is not a process of selection – it is a process of elimination. New properties are offered in the real estate market continuously so it's important that you're open to all options.
- Have a home inspection! A certified home inspector will identify existing and potential issues with the home you’ve chosen. Investing in a home inspection may save you tons of money in the future.
- Know the total costs involved. Ask your lender for a Good Faith Estimate; this is an estimate of your closing costs. The following fees should be taken into account: title company and attorney fees, Homeowner Association fees, a home protection plan, and insurance. Study your settlement statement with your real estate agent before closing on the home.
- Follow through on due diligence. Make a list of any concerns you have relating to community issues such as crime rates, school districts, pollution, etc. Ask these important questions before you make an offer on a home! Following through on due diligence will give you confidence in your purchase.
If you have questions that you don't want to show on the comments board, feel free to email us at roadmapblog@gmail.com !
Until we meet again...
Subscribe to:
Post Comments (Atom)
1 comment:
I am writing as a fully independent woman who was driven to purhase a new home after having experienced multiple financial setbacks. I can attest to having successfully achieved my goal after having met with a savvy, retired financial consultant who virtually led to to modify my "spending behavior".
I, too, felt fortunate to have an opportunity to move back in with a family member as construction was being scheduled for my new home. I was able to put aside an attractive down payment which afforded me a very manageable mortgage payment.(less than what I was shelling out in renting a small condo).
It is evident that now is quite an opportune time to plan to purchase or refinance a home with mortgage rates at a prime low. If you are in a position to purchase right away you can find good deals through realty experts and meet with a lending institution in order to arrive at a payment which you can meet comfortably, at a fixed rate. In doing so, you may also want to consider a geographic location which may be a bit further from your workplace but that also offers its own amenities as well as considerably lower tax rates and living expenses.
So, while Capital Hill is busy developing an effective financial recovery plan to combat the country's mounting deficit, we can be focused on developing our own financial plan.
Post a Comment