First-time home buyers have their work cut out for them. Between securing the mortgage loan and making sure they’ve accounted for all associated expenses, the process can be financially very stressful. The American Bankers Association suggests answering these five questions before you jump headfirst into making a home purchase.
- How much money do you have saved up? Start with an evaluation of your financial health. Figure out how much money you have for a down payment. Down payments are typically 5 to 20 percent of the price of the home. But be sure to keep enough in savings for an emergency fund. It’s a good idea to have three to six months of living expenses to cover unexpected costs.
- How much debt do you have? Consider all your current and expected financial obligations like your car payment and insurance, credit card debt and student loans. Make sure you will be able to make all the payments in addition to the cost of your new home. Aim to keep total mortgage payments plus utilities to less than 25% to 30% of your gross monthly income. Recent regulatory changes limit debt to income (DTI) ratio on most loans to 43%.
- What is your credit score? A high credit score indicates strong creditworthiness. Home buyers can expect to have their credit history examined. A low credit score can keep you from qualifying for the home you want or a low interest rate on your mortgage loan. If your credit score is low, you may want to delay moving into a new home and take steps to raise your score. For tips on improving your credit score, visit aba.com.
- Have you factored in all the costs? Create a hypothetical budget for your new home. Find the average cost of utilities in your area, factor in gas, electricity, water and cable. Find out if you will have to pay for parking or trash pickup. Consider the cost of yard maintenance and other basic maintenance costs like replacing the air filter every three months. You should also factor in real estate taxes, mortgage insurance and possibly a home owner association fee.
- How long will you stay? Generally, the longer you plan to live someplace, the more it makes sense to buy. Over time, you can build equity in your home. Carefully consider your current life and work situation and think about how long you want to stay in your new home.
Now that you know what you need, it’s time to go out and find that dream home! If you have additional questions or would like to talk to a home mortgage expert, contact NASB at 888-661-1982 or click here.
Content portions © 2019 American Bankers Association. Reprinted with permission. All Rights Reserved.
