Buyer's Resources
Buying a home is the largest purchase most people will ever make. There are many great benefits to home ownership. There are also responsibilities.
Are you ready to own a home? Look at your current situation and decide:
- Do you have continuing and reliable source of income prior to applying for the loan?
- Do you have a credit history that shows you are ready for owning a home?
- Do you have debts that are manageable and can still afford to take on the costs associated with owning a home?
- Do you have money saved for a down payment and closing costs?
Benefits of Owning a home
Homeownership has many advantages - both financial and personal.
What are the benefits of homeownership?
- Tax savings.
You may earn significant tax savings because you can deduct mortgage interest and property taxes from your federal income tax and many states' income tax if you itemize your deductions. - A more stable monthly housing expense.
Your monthly housing expense remains the same for the life of your mortgage, depending on the type of loan you choose. No more rent going up every year! - Gaining equity.
You may build equity in your home over the life of your loan. According to the Association of Realtors, a home doubles in value approximately every 10 years.
Homeownership is not always the right choice for everyone. Sometimes it is just not the right time to make such a committment. Let me review the differences between renting and owning your own home:
Renters are mostlly free from maintenance or lawn care.
Homeowners are able to have the freedom in decorating, landscaping, etc.
Renters can move more easily and more quickly than homeowners after giving the required notice to a landlord.
Homeowners have a financial investment and may build equity by their owning a home.
How Much Can You Afford?
Mortgage lenders typically use debt-to-income ratios to determine how much you can afford to spend on your mortgage.
- Housing Expense Ratio
Mortgage lenders recommend that your monthly mortgage payment should be less than or equal to a quarter of your monthly gross income. This percentage can change based on the type of mortgage you choose. - Debt-to-Income Ratio/consider your debts
You need to factor your debts into determining an affordable monthly mortgage payment. Mortgage lenders look at whether your total debt is greater than 30-40% of your monthly gross income. Remember, debt is not just credit cards and student loans. It also includes alimony, child support and car loans.
Contacting a mortgage lender and acquiring an approval is a great first step to the buying process. This eliminates looking at homes that you may not qualify for.
Questions About Homeownership
Q: Do I need great credit to become a homeowner?
A: Although credit is very important, there are many programs that exist for those with lower credit scores. Meeting with a lender would help determine what you can do to raise your credit score over time.
Q: Do I need to put 20% down to buy a home?
A: NO! There are many types of mortgage products and programs that allow low and no down payments. But remember to factor in other costs such as closing costs, property taxes, moving expenses, and repairs.
Q: If I'm late on my monthly mortgage payments will I lose my house?
A: If you have had a financial hardship, like the death of your spouse or a medical emergency and fall behind, it's possible to keep your home and get back on track if you contact your lender early. Communication with your lender is crucial! Do not avoid them!
Q: I can't get a mortgage if I've changed jobs several times in the last few years, right?
A: Not true. You can change jobs and still get a loan to buy a home. Lenders understand that people change jobs. The important thing is to show that you have had a consistent income in the same line of work.
