Financial experts say that owning a house is a better financial decision than renting.Home ownership means that as you pay off your mortgage you build real estate equity, instead of throwing your money away in rent to build up another person's equityThe trick to buying a house is figuring out how much you can afford.The decision is based on your debt-to-income ratio, your down payment, and the interest rate you can get.
Step 1: Talk to a mortgage broker for free advice.
If you get a skilled broker, he or she will want to make sure that you have the information you need about what kind of loan you can afford based on the bank's calculations and rules.The bank branch is a good place to look for a broker.They are available at the branch.The branch will usually give you the contact information for someone they recommend.Ask any real estate agent or friend for referrals if you can't find a mortgage broker through your bank.It is possible to consult multiple people to make sure you are getting the best information.
Step 2: Estimate the on-going costs of homeownership.
A homeowner needs to be prepared for the constant costs of utilities, continued maintenance, and liability for property taxes and insurance.Electricity, natural gas, water, and sewer are utilities that must be paid each month.Over and above the mortgage payments, owning a home costs the average homeowner $500 a month.The costs can be higher in different regions of the country.If you use landscaping professionals to take care of your property, the costs can be even higher.Financial experts recommend that you spend no more than 40% of your income on housing.A household earning $70,000 per year can afford to pay up to $1800 per month for mortgage costs.
Step 3: You can check the home mortgage market.
The mortgage market can be hard for a first-time buyer.Most of the mortgages fall into one of three categories.It's an FHA.The Federal Housing Administration guarantees losses if a borrowers default.All home buyers can get a mortgage.Down payments can be as low as 3.5%, but borrowers who put up less than 20% of the purchase price are required to buy and maintain private mortgage insurance until their equity reaches 20%.There is a state called Virginia.Military service members and veterans can get government guarantees against loan defaults.It is possible for borrowers to buy a house without a downpayment.Private mortgage insurance is not required for VA-guaranteed loans.It is conventional.A conventional loan does not have a government guarantee of repayment.Stricter credit and income requirements are often required by lenders.For less credit ratings, interest rates may be higher.If the equity is less than 20% of the original purchase price, the borrowers must buy private mortgage insurance.
Step 4: It's important to know what rates and rate programs are available to you.
The total cost of the house and the monthly payments are influenced by long-term interest rates.There has been a recent crack down on predatory mortgage lending, and borrowers may have a choice between a fixed rate mortgage and a variable rate one.Fixed rate loans.The monthly payment will not change because the interest rate will stay the same.Any significant decline in long-term interest rates is accompanied by a flurry of refinancing activity.There are variable rate mortgages.The interest rate can be adjusted according to the terms of the mortgage.The adjustment period can be a year or more.A hybrid loan is one that is fixed for a period of time, then adjusts annually.The risk of higher interest rates in the future is always present, even if the initial interest rate is low.It is now possible for borrowers to choose the term of their mortgage.In the first half of the year, the 30-year fixed-rate is the most popular choice for home buyers.Some buyers opt for 15-year terms since interest rates are typically 1.0-1.5% lower than 30-year mortgages even though monthly payments are higher due to the faster payoff.
Step 5: There will be additional one-time costs associated with your purchase.
Loan closing costs include a fee for running your credit report, attorney's fees, and title insurance.Buyers pay close to $4000 in closing costs.The down payment and long-term mortgage loan might have closing costs included.In some cases, buyers negotiate for the sellers to pay a portion of the costs.The amount of closing costs that will be charged to you should be understood.To figure out how much you can spend on a house, you need to take into account that you cannot spend every cent of your down payment.The amount of money you need to spend right away will be greatly increased by closing costs and a variety of other expenses.
Step 6: Check your credit score.
Your credit score is one of the factors that will determine how much you can borrow to purchase a house.If the bank or other financial institution does not like your credit score, they may reject your application completely.To qualify for a FHA loan with a down payment of only 3.5%, you must have a minimum credit score of 580.The 10% downpayment is required for applicants with a lower score.If you want to buy a home within the next two years, you need to improve your credit score immediately.If you improve your credit score, you can potentially save thousands of dollars in the long run, which will be reflected in a lower mortgage payment each month.
Step 7: Determine the maximum down payment.
Depending on your credit score and the type of loan for which you qualify, you will be asked to make a down payment of between 2% and 20% of the home's selling price.If you can make down payments of 20% or more of the home price, you have a better chance of being approved for a less expensive mortgage.In the U.S., a down payment of at least 20% of the purchase price of a home will allow the buyer to avoid private mortgage insurance.If you don't pay the monthly premium, you will save a significant amount of money over the long term.In order to buy their first home, many young people rely on savings and help from their families.It can be difficult to come up with a large amount of cash, so planning and saving your money will be important before you buy a house.Some first-time home buyers borrow from their 401(k) plan to make a down payment, paying themselves back over time.If you leave your job before you repay the loan, you could be subject to income tax and penalties.First-time home buyers can withdraw up to $10,000 from their IRAs for a down payment.Within 120 days, the funds must be used for the purchase of a home, and income tax will be due on the withdrawn amount.
Step 8: Take a look at your debt ratios.
Since the process and procedures to sell the property and seek compensation from the borrower are expensive and time-Consuming, mortgage lenders are more concerned with the ability of the borrowers to repay the loan.There are two debt-to-income ratios that mortgage lenders are concerned about.There is a front-end ratio.The monthly mortgage payment should not be more than 29% of the monthly income.The ratio is calculated by taking your annual salary and dividing it by 12.Joe earns $60,000 a year and has a front-end ratio of $1450.The back-end ratio.The back-end ratio is used to calculate how much debt you have.All debt includes the mortgage, car loans, credit cards, and student loans.Repayments of debts with more than 9 months remaining term should not exceed 41% of income.To calculate your back-end ratio, take your gross annual income and divide it by 12.Joe's total debt repayment should not be more than $2050 per month.The front-end ratio is not considered by the VA if you are trying to get a loan.Veterans who exceed the ratio can still get a mortgage-guaranteed loan, but must meet higher income standards.Debt-to-income ratios are used to qualify potential buyers.Since there is no government guarantee in the event of default, the desired ratios are more stringent than VA or FHA standards.
Step 9: Determine the maximum home purchase price.
You can figure out what the one-time and monthly costs will be for a specific purchase price after you understand all of the costs associated with buying a house.The price of a home depends on a number of factors, including your down payment, closing costs, mortgage loan amount, and the interest rate that will be charged on the loan balance.Keep in mind that you will need to keep a bit of money on hand for the variety of costs that will come up when you move into your new home.There are a lot of mortgage loan calculators on the internet that allow you to quickly change variables to see how each element is affected.A $240,000 home purchase with an FHA-guaranteed fixed-rate mortgage at 4.5% would require a downpayment of $20,000 and payments of $1,013.37 for thirty years.The same mortgage with a 15 year term and a rate of 3.5% would require payments of $1,429.77.A $240,000 home purchase with a VA-guaranteed fixed-rate mortgage at 4.5% would require no down payment and payments for thirty years.The same mortgage with a 15 year term and a rate of 3.5% would require $1,715.72 in payments.
Step 10: Decide on your comfort zone.
"Just because the math says you can afford a specific purchase price, doesn't mean you have to buy a house that expensive."Think about how much you can afford each month.Is it possible that you would feel stressed?Determine how much you would be comfortable paying each month before you start looking at homes.This could be less than the lender thinks you can afford.If you decide that you don't want to pay more than $900 per month, you may need to look for a less expensive home, or you could offer to make a larger down payment than the lender requires, thus lowering your monthly payments.
Step 11: Pre-approval is required for a mortgage loan.
Before embarking on a home buying expedition, it is worthwhile to seek a mortgage pre-approval.Pre-approval is a letter from a lender that you are preliminarily approved for a specific loan amount.The information can help you figure out the right home price range.Some sellers may need a re-approval letter in order to accept an offer to buy their houses.A pre-approval letter is not an offer to lend, a commitment to make a loan, or a guarantee of specific rates or terms.Having a pre-approval letter doesn't guarantee that an offer will be accepted by the seller.
Step 12: Do you want to settle down in one place?
You will need to balance the financial benefits of home ownership with other aspects of your life.An anchor that locks you down and limits your options can be found in a home.Renting a place to live is not as restrictive as owning a home.It can take months or years to get the price you want for a home.Renters can pack up and move quickly if they agree on the terms of their lease agreement.Do you know if you or your spouse may be transferred to a new location within the next few years?Buying a home is not a good idea if you don't plan to stay in the house for at least three years.Is your lifestyle incompatible with the requirements of owning a home such as weekly lawn care, seasonal cleaning of gutter, or installing shutters?Most of the work of homeownership can be delegated to others for a price, but that adds onto the on-going cost.It is possible that your marriage, health, or career status may change within the next few years.How will owning a house affect you?
Step 13: A house won't increase in value.
Thousands and thousands of homeowners have learned that the prices of their homes can go down, leaving them with more debt than their home is worth.The value of surrounding properties has been driven down by the abandonment of abandoned homes.
Step 14: The social pressure of home ownership is recognized.
Keeping up with the Jones' is a constant danger in most neighborhoods and few are able to resist the competition.The bigger the home, the more space you have to buy things.In an apartment, the hand-me-down furniture with your frat-house bookcases looked great, but not as good as the neighbor's furnishings.Spending time in neighbor's wonderful homes can ruin a carefully planned budget.Remember that nostalgia is in fashion if you buy a house.Don't be afraid to check thrift stores for used furniture.A little elbow grease and paint can turn a throw-away into a treasure.
Step 15: How much space do you need?
What is too much space?It's a matter of personal opinion, so there are no guidelines for figuring it out.Some families prefer small bedrooms and larger living areas to promote togetherness while other families value privacy so bedrooms are bigger.There is a home that fits your needs.When thinking about your dream house, think of the rooms you need first.Do you need more than three bedrooms?Is a formal dining room important?Will a living area replace a formal living room?How many baths will be needed?Do you want to separate the laundry room?Do you want a ranch or a multi-story?
Step 16: There will be changes to your family in the future.
A homeowner keeps his or her house for nine years before selling.A majority of homeowners sell their homes within five years.A change in family size is one of the primary reasons for buying or selling a home.A typical family might buy a smaller first home as their children grow up.When the children leave home, downsize to 1000-1400 sq ft.Think about the educational requirements of your family.Home prices can vary a lot from one neighborhood to the next.Do you expect to have children in the home?Are your children going to public, private, or parochial schools?Home buyers are willing to pay more for a house in a good school district because it will eliminate private school tuition and fees.A single person or pair of adults without children may decide that the premium for a good school system is too high.It doesn't mean that you have to buy a house that is too big for you now.A homeowner keeps his or her house for nine years before selling.A majority of homeowners sell their homes within five years.A change in family size is one of the reasons for selling one home and buying another.A family might buy a smaller first home as their children grow up.When the children leave, downsize to 1000-1400 sq ft.
Step 17: Consider the location of your house and your transportation costs.
Take your commute time and costs into account.You will spend more time in your car or on mass transportation if you have a longer distance between home and work.When choosing your ideal location, take into account how far you'll have to travel to work.