Are You Ready?
How do you decide if you are ready to buy a new home? There really are only four areas that need to be addressed. If you answer in the affirmative to any of these questions, this is a good indicator that you are ready to buy a home.
First, how is your employment record? Lenders are looking for consistency and stability. Usually, most lenders want to see a stable work record of at least two to three years. While it is a good idea to have been at the same place for two years, lenders favorably approve moving from job to job if that move is the result of a promotion or better pay. Another thing lenders look at is if there are any gaps in your work history. Sometimes there may be circumstances such as military discharge, school graduation, illness, or layoffs that cause work gaps. As long as these gaps can be explained, lenders will be appeased.
Next, how is your credit? Your credit report or history usually can give lenders a clear indication of your repayment history and how you deal with your bills. Your credit report is obtained from credit card companies, banks that have lent you money, department stores and gas companies that have issued you a credit card. Lenders are particularly looking to see if you pay your bills on time and if you are faithful to the credit obligations that you agreed upon when you applied for and began using your credit cards. Being late with a payment or going over your credit limit once or twice will not hurt your chance at a mortgage loan if these incidents can be explained and do not indicate a pattern of credit abuse.
Another question which is probably the most important is how are your saving habits? Almost all homebuyers are seeking a mortgage loan. Most lenders will not cover the full amount of the loan and insist on the applicant contributing some part of the total price. A standard down payment usually consists of five percent of the total cost of the home. A $200,000 home will require a down payment of at least $10,000. Some lenders require only three percent of the cost of the home as a down payment but usually it is five. Additional expenses that will be incurred right away will be the closing costs. Closing costs mainly are legal fees that deal with the transference of property to your name. This includes legally registering your land title and your property deed. Closing costs usually run between three and six percent of the total cost of the home. Using our $200,000 example, closing costs and pre-paid escrow accounts would run between $6,000 and $12,000 dollars. Already, if you add your down payment of five percent and a minimum closing cost of three percent, your total that is required up front is $16,000 dollars. Congratulations are in order if you have saved enough money for down payment and closing costs. Accumulating sufficient funds to cover these expenses is probably one of the hardest aspects of purchasing a home.
Finally, it is a good idea to ask yourself how much you can afford monthly for the house of your choice. Usually the amount of your monthly mortgage payment is limited to twenty eight percent of your gross monthly income while the monthly amount of total debt is thirty six percent. Staying within these two figures should insure an affordable monthly mortgage payment. If you were not able to answer all of these questions favorably, now may not be the right time for you to purchase a home or maybe you may have to consider buying a home that you can afford instead of what you desire. It is all right to lower your sights just a little bit for your starter home. Chances are you will be able to afford your ideal home shortly or at the very least be able to start an informed savings plan knowing exactly what lenders look for. If your credit is damaged and needs repairing, please refer to our credit repair page on our site. We can help you. ApartmentAssistant.net can put you in touch with one of our personal financial planners to assist in beginning your journey to that new home. If this all seems impossible right now, continue to rent until you meet these criteria.
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