Are You Ready to Buy a House?
Are You Ready to Buy a House?
Buying a home is an important event that many people dream of one day. It is essential to consider several factors before making one of the most important financial decisions of your life.
In this list of 8 points, you have a clearer picture of where you are standing and decide if you are ready to buy a house.
1. Are you able to make a down payment?
Although not many know it, the minimum down payment can go from 3.5% to 10% for an FHA mortgage loan and a minimum of 3% to 5% for a conventional loan.
For example, to buy a home for $ 500,000 with a traditional loan, you would have to make a down payment of 5%, or $ 25,000. These percentages may vary according to the type of credit you qualify for.
Sounds good, right? But it is important to remember that even if you do not need more than that at the time of making your initial payment, the higher it is, you will pay less interest, and the monthly payments will be lower. Another thing to keep in mind is that if your down payment is less than 20%, you will have to obtain private mortgage insurance (PMI), making your monthly payment higher.
So, although it is possible to access your house with a very low initial payment, it is not the most advisable. In the unconscious of people is the idea that the initial payment should be 20%, and that is because when making the payment for that amount, a low fee can be maintained and not pay insurance that is a waste of money.
2. Do you have a strong saving and emergency fund?
A common mistake when buying a home is to think that you will only need the money for 20% of the down payment. Consider that you will also have closing costs, including more or fewer fees depending on the type of credit and the people you work with. Closing costs range from 2% to 5% of the home’s purchase price.
On the other hand, it is also possible that the house requires some maintenance that should be carried out before move on. These maintenances could be carried out later or wait for them to appear as problems although it is not the most advisable; however, you must have emergency funds to meet those expenses. Once the property becomes yours, you will have all responsibility to carry out the arrangements. It will no longer be like when you rented that the owner covered those arrangements.
Keep this in mind when deciding how much money to spend on your down payment.
3. Do you have a good credit score?
Having a low score does not make it impossible to buy your first home. There are a wide variety of loans and programs available to first-time buyers. What is true is that a higher score will help you qualify for a lower mortgage rate, saving you money in the long run.
So you wonder, what score do I have to have to buy a house? Well, there is no exact number. You most likely need a minimum score of 600. But as we mentioned earlier, if you strive to improve your score to 700, you may qualify for more beneficial rates.
4. Do you have debt?
Don’t worry, it is normal. The reality is that today it is not a condition to be free of debt to buy a home. Mortgage companies are aware that people tend to have some debt from student loans, vehicle payments, etc. They will take into account that in addition to being able to solve their previous debt, you can also cover what they will loan you for the purchase of your house. The debt-to-income ratio must be less than 43% to qualify for a credit.
5. Did you make the numbers?
It is crucial to know that you will be able to pay the expenses before taking out a loan. There are online mortgage calculators to do this, but the mortgage payment will not be the only thing you will have to pay. It should also cover:
Property taxes and insurance
Homeowners Association (HOA) fees, if applicable.
Household expenses (sewer, garbage, internet, etc.)
Utilities (water, electricity, etc.)
Expenses related to housing mentioned above, such as vehicle fees, student loans, etc.
So get the numbers right before you dive into buying a home.