STEP 1. Calculate How Much Home You Can Afford: there are millions of homes to choose from and it can be daunting if you start house hunting without narrowing your search first. To set yourself up for success, the best place to start is to consider how much home you can afford.
A. Consider Your Income: Many banks will require that your monthly costs can't exceed a percentage of your income (for example 28%). That means if you earn $50,000 per year, your total monthly housing costs should not exceed $1166 (28% of your monthly income), but it's more than just your income that a bank will look at!
B. You Must Consider your debt plus new payments for your mortgage may not be allowed to exceed a certain threshold (for example 41%). Using the example above that would mean that if your monthly debt payments are in excess of $541 per month (bringing your total debt of $541 + $1166 = $1708 or 41% in total). This is called debt to income ration!
You can use a mortgage calculator or to put it simply, someone that makes $50,000 before taxes should probably target a home that is $250 or no more than 5 times their annual salary.
STEP 2. Consider The Down Payment: Most lenders prefer a down payment of 20% or higher to qualify for a conventional loan, but if you don't have 20% there are still loan options you might consider where you can put down less! For many would-be home buyers, the down payment is a big factor that influences how much they can afford. Nearly all mortgage loans and lenders require some amount of cash as a down payment. The amount you have set aside for this could determine the kind of mortgage you qualify for. It will also impact how much you can afford to borrow for a home. While most conventional loans require 20% or more down, there are many other loan option out there, as well as first time home buyer programs that will offer down payment assistance. There are some mortgages that offer smaller down payments, ie; FHA, VA, USDA, GSE backed loans, such as Freddie Mae and Fannie Mac, but you run the risk of paying a mortgage insurance, known as (PMI) Private Mortgage Insurance with some of these lower down payment loans. This will cause your monthly mortgage payment to be higher!
STEP 3. Find The Right Home For You: Now that you know how much you can afford and how much you need to save for your down payment, your ready for the fun part and that's finding the right home for you and your family!
A. Things to consider is how big is your family? Would commute time for work or school be a factor? What type of neighborhood is it for a family, possibly with small kids or teenagers? What type of home, ie; single family or condo? Is it close to dining and other amenities? Is the property in a flood-zone and does the neighborhood holds its value consistently? Would you prefer rural or urban, acreage or smaller lot?
B. Make a list of features you would want in your new home from most to least important, ie; number of bedrooms, baths, garage space or parking space if required. Type of lot whether corner lot or cul-de-sac lot., one story or two story, minimum or maximum square footage and so on......
STEP 4. Time To Find The Right Lender: One of the biggest mistakes a buyer can make is not shopping around for a lender. Make the lender COMPETE for your business! Start buy checking with your Realtor first. Most often they have a number of lenders they can refer you to. Don't fall in the trap of letting anyone make you feel rushed, after all you will be in this mortgage for the next 15 to 30 years, so choosing the right one is really worth prioritizing. Find the best rate for you and lock it in!
STEP 5. Get Pre-Qualified: By this point you should have a pretty good idea about what kind of home your looking for, and the neighborhood you'd like to live in. You also know how much you have saved up for a down payment, which in turn should also assist you in knowing what type of loan you should apply for. If you've compared a few rates and you've met the lenders credit guidelines, now is the time to request a pre-approval letter!
When your ready to make that move, call Rhonda your trusted Realtor!
HAPPY HOUSE HUNTING