Buyer's Resources
Buying a home is the largest purchase most people will ever make. Homeownership has great benefits. Homeownership also comes with certain responsibilities.
Are you ready for homeownership? Look at your current situation and determine if:
- You have a continuing and reliable source of income prior to applying for the loan.
- You have a credit history that shows you're ready for homeownership.
- Your total debt is manageable and you can afford to take on the costs associated with homeownership.
- You have money saved for a down payment and closing costs.
Once you fully understand your current situation, it's important to look at the pros and cons of homeownership to make the best decision for you and your family.
Benefits of Home Ownership
Homeownership has many advantages - both financial and personal. But buying a home is an important decision. Look at the benefits and the differences between homeownership and renting to better understand if owning a home is right for you.
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 loan or mortgage expense can remain the same for the life of your mortgage, depending on the type of loan you choose.
- Equity.
You may build equity in your home over the life of your loan, which allows you to plan for future goals like your child's education or your retirement.
Homeownership is not right for everyone. It may not be the right time in your life or you may not like the commitment associated with owning a home. Here are some differences between renting and homeownership:
- Renters are typically free from maintenance obligations such as repairs or lawn care.
- Homeowners often have more freedom in decorating, landscaping, etc.
- Renters can move more easily and more quickly than homeowners and there are higher costs associated with buying and selling a home.
- Homeowners have a financial investment and may build equity in their home.
How Much Can You Afford?
To get a quick idea of what you can afford to spend, multiply your annual gross income (before taxes) by 2.5. For example, if your annual household income is $50,000, you might be able to qualify for a $125,000 home. This is just a rough estimate - the actual number will vary based on factors such as your debt and credit history.
Mortgage lenders typically use the housing expense and debt-to-income ratios to more accurately 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 and sometimes the area in which you're looking to buy.
- Debt-to-Income Ratio
You need to factor your other debts into determining an affordable monthly mortgage payment. Mortgage lenders look at whether your total debt is larger than 30-40% of your monthly gross income. Remember, debt is not just credit cards and student loans. It can also include alimony, child support, car loans, and housing expenses.
A mortgage lender, a housing counselor, or consumer credit counselor can help you better understand these guidelines. Before you talk to a financial professional, you can organize your financial picture by creating a budget. Don't forget that you also have to save for the down payment, closing costs, inspections costs, moving, and other related expenses.
What's the Next Step?
Before you start shopping for a new home you need to contact a lender and get pre-qualified. The lender will gather your financial information and determine what you can afford. From there they will issue you a pre-qualification letter which is all but required by most agents before submitting an offer on a home. If you do not have a lender in mind I work with several lenders that I could put you in touch with, just click here and we'll get started on your path to homeownership.
Back to the Top
|
.jpg)
.gif)
