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Thinking About Buying Your First Home?
Many renters are starting to think about purchasing a
home of their own. Several factors should be considered
when purchasing a home:
How long 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
you to sell your home.
The length of time that it will take to cover those
costs depends on various economic factors in the area of
the 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 the time
to cover these costs could be shortened, and the
opposite is also true.
How long the home will meet your needs.
What features do you require in a home to satisfy your
lifestyle now? Five years from now? Depending on how
long you plan to stay in your home, you'll need to
ensure that the home has the amenities that you'll need.
For example, a two-bedroom dwelling 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 idea
of what you'll 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 you to buy a home?
Would you rate your financial 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
credit history is not good. Generally, a couple of
blemishes on a credit report will make you a good credit
risk and could qualify you for the lowest interest
rates. If you have more than a couple of blemishes on
your report, lenders like Quicken Loans may still
provide you with a loan, but you may just have to pay a
higher interest rate and fees.
Some say that you should refrain from borrowing as much
as you qualify for because it is wiser not to stretch
your financial boundaries. The other school of thought
says you should stretch to buy as much home as you can
afford, because with regular pay raises and increased
earning potential, the big payment today will seem like
less of a payment tomorrow. This is a decision only you
can make. Are you in a position where you expect 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,
it's within your comfort zone.
To determine how much home 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 qualify 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 percent
of your income and your total debt load can't exceed 36
percent 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.
While we're not advocating you purchase a home utilizing
the higher ratios, its important for you to know your
options.
Where the money for the transaction will come from.
Typically homebuyers will need some money for a down
payment and closing costs. However, with today's broad
range 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 managed to save 10-20%
for a down payment, you will still appear to be a very
good financial risk to a lender.
The ongoing costs of home ownership.
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 monthly homeowner's association fee might be required.
If these additional costs are a concern, you can make
choices to lower or avoid these fees. Be sure to make
your realtor 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. |
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