Archive for the 'Home Buying 101' Category
Home Buying 101 - Step Three: How much can you afford?
January 7th, 2009 categories: Home Buying 101
This is the third installment of twelve weekly features for first-time homebuyers on buying a home, now updated for 2009.
What you can afford depends on your income, credit rating, current monthly expenses, down payment amount and interest rate. You can find out roughly what you can afford by visiting one of many sites that offer free mortgage calculators. I like Ginnie Mae’s.
But because there are so many factors in determining the amount you would qualify to borrow, it is best to talk with a lender directly. You don’t have to marry your lender just yet - you can shop around for best service, rate, closing costs, etc., until you actually find the home of your choice. In an earlier post, I gave you some suggestions for finding a lender.
You may also want to look into one of many state and local programs designed to help buyers. Connecticut Housing and Finance Authority offers loans and assistance programs targeted at first-time buyers, but not limited to. You don’t have to contact CHFA directly to obtain a CHFA mortgage - some lenders offer CHFA loans in addition to conventional loans.
Other programs can be found on the Department of Housing and Urban Development’s (HUD) site.
If you find you need help with managing and paying off existing debt that may be standing in your way of home ownership, HUD also has housing counselors throughout Connecticut available to assist you.
One word of caution. If you are planning to purchase a home within the next 6 months to a year, don’t make any big purchases. Try to have as much cash available for closing costs, inspection fees and other expenses that come up when you purchase a house. And, don’t take out a lot of credit for items like a car, student loan, engagement ring, etc. More debt and more inquiries will likely lower your credit score and could increase your interest rate on the mortgage and even impact your insurance premium on your homeowner’s policy.
For more articles in this series, visit the category of Homebuying 101.
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Home Buying 101 - Step Two: Know Thy Credit
December 30th, 2008 categories: Home Buying 101
This is the second in my Home Buying 101 Series, now updated for 2009.
If you answered yes to the question I posed in my first post of this series, Should You Buy? And When?, then the most important thing you can and should do for yourself is find out what lenders know about you. And almost everything they care to know is in your credit reports (Note: you might also want to type your name in Google and find out what comes up because your lender can and may do the same thing).
Why is good credit important? Your credit report is a record of all your credit transactions whenever and wherever you’ve used credit to purchase goods and services. Your credit will have a big influence on whether or not you can get a mortgage, the terms of that loan, and the interest rate. If you have good credit, you may have a much wider range of mortgage offers with lower rates.
Your credit report will also affect the rates you pay for auto and home insurance. Some employers are also running credit reports - think of it as your financial resume.
What is in your credit report? Your credit report includes your current debts, paid debts, and payment histories for credit cards, loans, medical bills, leases, anything reported to a collection agency, liens, and a bankruptcy. It will also include the number of times someone pulled your credit report, called an inquiry. Read the rest of this entry »
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Home Buying 101 Series - Updated for 2009
December 15th, 2008 categories: Home Buying 101
My essential Home Buying 101 series is getting a makeover, just in time for 2009. My first post, Home Buying 101: Should You Buy? And When? has just been updated.
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Home Buying 101: Should You Buy? And When?
December 15th, 2008 categories: Home Buying 101
This is the first post in my Home Buying 101 series, now updated for 2009.
The benefits of owning a home are well-known - tax deductions for your mortgage interest, building wealth, using your equity to trade-up, being able to do with your home whatever you choose and the personal satisfaction of owning a piece of real estate. But it’s not for everyone.
Should You Buy?
This is a question you have to answer on your own. Here are some questions to get you thinking:
Can you handle it if you hear that real estate values in your area have declined? The reality is that real estate values are on the decline, with no one knowing when or where the bottom will be. However, if you don’t plan to sell over the next few years, it really won’t matter what your house would be worth on the market if you have no plans to sell or refinance. Some people, though, can’t stand thinking they “lost” money.
Do you have a steady source of income both before and after homeownership? If you’re about to change careers, having problems with your current employer, or your industry or company has a history of layoffs, you should hold off on buying a house in the near future in case you become unemployed and don’t have another reliable source of income.
What’s your credit like? You don’t need to get a credit report to tell you whether you’re likely to have good credit. If you have creditors calling you day and night or recently had a repossession or bankruptcy, then you probably don’t have good enough credit to get a loan. While you can’t change, you do have time to fix your credit and change your ways before getting a mortgage - this will improve your odds of getting a loan and getting a better rate.
Do you have money saved for a down-payment and closing costs? Typically, you’ll need at least 3% of the purchase price for a down-payment and between 2% and 7% for closing costs. However, some programs like CHFA offer loans to help with the down payment or to pay closing costs. VA and the USDA also offer 100% financing for certain borrowers and properties. If you can save 20% of your projected purchase price, this is best. You will avoid private mortgage insurance (a cost to homebuyers if you do not have 20% to put down) and will be in better position long term.
Can you afford to be a homeowner? Are you prepared to handle annual increases in taxes, increases in utilities, costly repairs such as a new roof, increasing insurance, etc? Read my guide to some typical repair costs.
Will you be able to manage if the property values decline and you have to sell? This is the risk of loans with 100% financing - if you take out a mortgage for $250,000 and one year later, your home is only worth $240,000, you still owe the lender $250,000 when you sell.
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