Once you have a clear idea of what you're spending, create a realistic budget. Remember to consider your monthly debts and leave room to save. Expect to disburse at least 10 percent of the purchase price for a deposit and another 5 percent for closing costs. This budget will serve as a roadmap to finding a home that can reasonably pay.
A mortgage lender uses the debt-to-income ratio to determine if you can financially pay monthly payments for the property where you plan to apply for a mortgage loan. That said, Samantha Odo, licensed real estate expert and chief operating officer at Precondo, suggests not to overdo it. Be honest with yourself and visualize how you'll pay mortgage payments in the future, says Odo. Remember, it's not just about what lenders tell you; it's also about how much you know you can afford.
Nobody knows your finances better than you do, so make sure you buy a home that doesn't extend your debt-to-income ratio too much. While often overlooked, the amount of time you plan to spend in the house is one of the most important factors to consider when buying. Basically, does the length of stay make it cheaper to buy than to rent? Of course, there is no simple answer to such a generic question. Each market is different and will require further analysis to determine if buying is the right option.
That said, it's entirely possible to predict whether the time you plan to spend in the house justifies your purchase or not. A down payment for a purchase remains one of the biggest obstacles in the path of prospective buyers. Millennials, in particular, have struggled to save a lump sum of money. Millennials not only graduated from college during one of the worst recessions in American history, but they are also burdened with student loan debt.
As if that weren't enough, subscriptions have become more difficult to work with and rents have made it totally impossible to save enough money for a down payment. In an attempt to make down payments more “affordable,” both Fannie Mae and Freddie Mac have announced that they intend to back loans with down payments as low as three percent. In addition, the Federal Housing Administration (FHA) plans to reduce premiums owed for mortgage insurance. Moving Could Make Homeownership Much More Affordable for Buyers.
It's a good idea to keep housing costs no more than 28% of your monthly gross income. That means that your monthly mortgage payments, property taxes, and homeowners insurance should not exceed that threshold. You'll also want to consider your total debt-to-income ratio, or DTI, when determining how much housing you can afford. Your DTI is the portion of your monthly gross income that goes toward monthly debt obligations, including housing costs plus paying for cars, student loans, credit cards, and other debt payments.
A good DTI to qualify for a mortgage is 36% or lower. Lower is better for budgeting things like emergency expenses and for comparing buying a mortgage loan. But the future could also mean downsizing; that my children are gone and I don't necessarily need this 20 to 25, 3,000 square foot house. Each expense should be researched and estimated before committing to buying a home, as sometimes these monthly expenses can put you outside your comfort zone of monthly spending.
As you reflect on things to consider when buying a home, the process can become increasingly daunting. But if you don't qualify, you'll need to include a line item for closing costs in your homebuying budget. If you want to know more but the hidden and additional costs of buying a home, watch this video here and in the description below. When buying a home, there are too many things to consider to reduce your criteria to one or two factors.
Buying a single-family home is a huge investment, and there's always more to it than just the purchase price. Homebuyers with children, or those who are ready to start a family, should also take a moment to review schools in the area. As frustrating as it may be, one of the most important factors to consider when buying a home is something that you have no control over the local market. While not inconsequential, interest rates are just one of many factors to consider when buying a home.
You don't need to be a real estate magnate to buy a home, but you do need key information about yourself and the homebuying process. Interest rates are by no means the only factor that must determine when you are ready to buy a home. A number of factors need to be considered when buying a home, such as the housing market, interest rates, and plans you may have for the future. One factor to consider when buying a home is that some sellers are more motivated than others, while others are more apathetic as to whether or not their home sells.