Thinking About Buying Your First Home?
Keep these considerations in mind:
How long do you plan to live in the home?
If you purchase a home and get a job transfer or decide to move after only a short time, you may end up paying money in order to sell it. The value of your home may not have appreciated enough to cover the costs that you paid to buy the home and the costs that it would take to sell your home.
The length of time it will take to cover those costs depends on various economic factors in the area of your home. Most parts of the country have an average of 5% appreciation per year. In this case you should plan to stay in your home at least 3-4 years to cover buying and selling costs. If the area you buy your home in experiences an economic up-turn, the length of time to cover those costs could be shortened, and the opposite is also true.
How long will the home meet your needs?
What features do you require in a home to satify your lifestyle now? Five years from now? Depending on how long you plan to stay in your home, you will need to ensure that the home has the amenities that you will need. For example, a two bedroom home may be perfect for a young couple with no children. However, if they start a family, they could quickly outgrow the space. Therefore, they should consider a home with room to grow. Could the basement be turned into a den and extra bedrooms? Could the attic be turned into a master suite? Having an idean of what you will need will help you find a home that will satisfy you for years to come.
Your financial health - your credit and home affordability
Is now the right time financially for your to buy a home? Would you rate your finacial picture as healthy? Is your credit good? While you can always find a lender to lend you money, solid lenders are more skeptical if your client history is not good. Generally, a couple of blemishes on a credit report will make you a good credit risk and could quality you for the lowest interest rates. If you have more than a couple of blemishes on your report, lenders may still provide you with a loan, but you may have to pay a higher interest rate and fees.
Some say that you should refrain from borrowijng as much as you qualify for because it is wiser not to stretch your finanacial boundaries. The other school of thought says you should stretch to buy as much home as you can afford, because with regular pay raise and increased earning potential, the big payment today will seem like less of a payment tomorrow. This is a decision onlyt you can make. Are you in a position to make more money soon? Would you rather be conservative and fairly certain that you can make your payment without stretching financially? Make sure that whatever you do, do it within your comfort zone.
To determine how much you can afford, talk to a lender or go online and use a "home affordability" calculator. Good calculators will give you a range of what you may quality for. Then call a lender. While some may say that the "28/36" rule applies, in today's home mortgage market, lenders are making loans customized to a particular person's situation. The "28/36" rule means that your monthly housing costs can't exceed 28% of your income and your total debt load can't exceed 36%of your total monthly income. Depending on your assets, credit history, job potential and other factors, lenders can push the ratios up to 40-60% or higher. This is not to advocate you purchase a home utilizing the higher ratios - it is simply important for you to know your options.
Typically homebuyers will need some money for a down payment and closing costs. However, with today's broad rang of loan options, having a lot of money saved for a down payment is not always necessary - if you can prove that you are a good financial risk to a lender. If your credit isn't stellar, but you have manged to save 20-25% for a down payment, you will still appear to be a good financial risk to a lender.
The onging costs of home ownership
Where will the money for the transaction come from?
Maintenance, improvements, taxes and insurance are all costs that are added to a monthly house payment. If you buy a condominium, townhouse or in certain communities, a money homeowner's association fee might be required. If these additional costs are a concern, you can make choices to lower or avoid fees. Be sure to make your REALTOR(R) and your lender aware of your desire to limit these costs.
If you are still unsure if you should buy a home after making these considerations, you may want to consult with an accountant or financial planner to help you assess how a home purchase fits into your overall financial goals. Contact me to receive a copy of: The 5 things you absolutely MUST know before purchasing your first home.
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