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First-Time Homebuyers
The Length of Time You Plan on Living in Your Home?
If you purchase a home and decide to move after only a short time
, It may end up costing you more money in order to sell it. The value of your home may not have appreciated fast enough to build a good equity to cover the costs that you had paid initially to buy the home and the costs that you need to sell your home.
The length of time that it will take to cover those costs depends on various economic factors in the area of the home. In some parts of the country, homes have an average of 5% appreciation per year. In this case, you should plan to stay in your home at least 3-4 years to cover the buying and selling costs.
Will your home meet your needs 2 to 5 years from now?
Although it is important to consider what features are needed now to satisfy your immediate lifestyle, you should consider events that might change down the road. Your length of stay in your home requires a serious consideration. For example, a two-bedroom house may be perfect for a young couple with no children. However, if you change your mind and decide to start a family now instead of 3 to 5 years from now, you could quickly outgrow your current living space. Keep the schools in your considerations. Having an idea of what you'll need will help you find a home that will satisfy you for years to come.
Do you know your financial health--What is your credit history?
Before doing anything else, you should ask the following questions:
- Financially, do I consider "now" is the right time to buy a house?
- Do I rate my financial picture as healthy as it should be?
- Is my credit history any good?
Although you may find a lender to want to lend you money, most lenders are more skeptical if your credit history is not good. Generally, a couple of blemishes on a credit report will make you a good credit risk and could qualify you for the lowest interest rates.
Some may say that you should not borrow the maximum of what you can qualify for, because you are better off not to stretch your financial boundaries to the limit.
There is another school of thought that says, you should stretch your financial borrowing to the max to buy as much home as you can afford, because with future pay raises and increased earning potential, the big payment today will seem like less of a payment tomorrow.
Keep in mind that this is a decision only you can make, since you know more about your finances than anyone else. Are you certain that you can make your payment without stretching your financial budget? In a nutshell, make sure that whatever you do, you'll always are within your means.
To find out how much property you can comfortably afford, take some time out and talk to a lender you can trust or use a "home affordability" calculator. Good calculators will give you a range of what you may qualify for.
Although some say that the "28/36" rule applies, in today's home mortgage market, lenders have creative ways of making loans customized to a particular person's situation.
The "28/36" rule means that your monthly housing costs should not exceed 28 percent of your income, and your maximum debt should not exceed 36 percent of your total monthly income.
Some lenders can even push these ratios up to 40-60% or in some instances even higher, by considering your current assets, credit history, job potential and other factors. Although we're not advocating that you purchase your home loan by utilizing the higher ratios, its important for you to know your options.
Do you have the down payment and closing costs figured in, in your finances? Have you considered the ongoing costs of home ownership?
If you are still unsure if you should buy a home after making these considerations, you may want to consult with an accountant or financial planner to help you assess how a home purchase fits into your overall financial goals.
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