BUY
Avoiding costly buying mistakes!
Here are some tips about buying a home to save time, money and trouble:
PLAN
AHEAD
Make sure to establish good credit. Save as much as you can to be able to afford the down payment and for the costs associated with closing on your future home.
GET
PRE-APPROVED
Make sure to establish good credit. Save as much as you can to be able to afford the down payment and for the costs associated with closing on your future home.
KNOW WHAT
YOU WANT
Make sure to establish good credit. Save as much as you can to be able to afford the down payment and for the costs associated with closing on your future home.
KNOW
YOUR BUDGET
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How big of a house you can afford depends on how much cash you will be able to put down. There are two rules of thumb how much a creditor will lend you:
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Forms of employment: If you are a self-employed home buyer you can afford a home purchase that is up to 2 ½ times your yearly adjusted gross income plus any items allowed to be added back or deducted.
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If you are not self-employed you may afford a home that is up to 2 ½ times based on your gross yearly income. Your monthly payments (interest and principal) should be 1/3 of your take home pay or ¼ of your gross pay.
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HAVING THE CASH
TO
CLOSE
The more money you have to put down, the lower your mortgage will be. Depending on the loan you can put as little as 3% down, but you will have a higher interest rate. Anything below than 20% down will require you to pay for a Private Mortgage Insurance (PMI) which will protect the lender should you have difficulties to make your mortgage payments. Expect to pay 3% to 6% of the loan amount in closing costs.
The closing cost are fees required to close a loan including insurance, title fees, inspections and points. You can ask the seller to pay some of the closing costs, in which case the mortgage company simply adds that amount to the price of the home purchase and it gets financed with the mortgage. The lender may require you to have two months of mortgage payments in your savings account when you apply for the loan.
KNOW YOUR DEBT
Any lender will look at your income and your existing debt when evaluating your application. Lenders use two ratios as guidelines:
Housing Expense Ratio.Your monthly PITI payment (Principal, Interest, Taxes and Insurance) shouldn’t exceed 28% of your monthly gross income.
01
02
Debt to Income Ratio. Your long-term debt should not exceed 36% of your monthly gross income. (Consider any debt that will take more than 10 months to pay off – mortgages, student loans, alimony, car loans, credit cards and child support).
LENDERS ARE NOT
INFLEXIBLE
However, if you can make a large down payment or if you have been paying rent close to the same amount as the proposed mortgage - the lender may be willing to cut you some slack.