Buying your first home is a big step. Naturally there are a number of questions that come to mind, from down payments to monthly payments and more. If you’re wondering if now is the right time to buy, especially at Cadence at Gateway in Mesa, consider the following:
Am I ready to buy?
Do you have a solid financial situation in regard to student loans, auto loans and personal loans? Is there money left at the end of the month or more month than money? Take a hard look at these issues before you begin shopping for a home.
Does my credit score impact my ability to buy?
Your credit score is the number a bank uses to determine how well you handle credit.
Credit.com says: “Most lenders have a baseline credit score they use to approve or deny mortgage applicants. Any score in the 700s or above is considered excellent and will most likely get you a loan with the lowest interest rate. When your score drops into the 600s, you start to be seen as a potential risk for loaning money to. A score of 680, for example, is still considered good, but when you get below 660, some lenders start saying “no.”
“Those scores and cut-off points are for conventional fixed-rate mortgages. Other types of mortgages, such as FHA or VA, are easier to get and even designed for borrowers with credit scores as low as 500.”
How much do I need for a down payment?
Hint: it’s a lot less than 20%.
Homebuyinginstitute.com says the minimum down payment for a conventional home loan usually ranges between 3% to 5%.
“But there are some credit unions and other organizations that offer 100% financing, which eliminates the need for a down payment altogether. Those programs are generally limited to a specific audience (i.e., their own members). For most borrowers, the lowest down payment for a conventional mortgage loan is 3% to 5%.”
What are the tax benefits of being a homeowner? Loan discount points, origination fees, mortgage interest and real estate taxes are deductible in most cases. Find more information in the IRS Publication 530, Tax Information for Homeowners.
What is the difference between pre-qualified and pre-approved?
We found this helpful information on allbusiness.com:
Pre-qualification: Getting pre-qualified for a mortgage gives first-time homebuyers an indication of how much they “might” qualify to borrow. This mortgage amount is not guaranteed because no information has yet been verified. A letter from the lender may only state that you are “likely” to be approved for a mortgage.
Pre-approved: Better yet is getting pre-approved for a mortgage, which is based on a real credit score, and it also puts real estate agents and home sellers at ease. The buyer has more to offer when making a deal and in a competitive market this can be a definite plus.)
How much house can I afford?
Your maximum mortgage payment (rule of 28)
The golden rule in determining how much home you can afford is that your monthly mortgage payment should not exceed 28 percent of your gross monthly income (your income before taxes are taken out). For example, if you and your spouse have a combined annual income of $80,000, your mortgage payment should not exceed $1,866.
Your maximum total housing payment (rule of 32)
The next rule stipulates that your total housing payments (including the mortgage, homeowner’s insurance, and private mortgage insurance [PMI], association fees, and property taxes) should not exceed 32 percent of your gross monthly income. That means, for the same couple, their total monthly housing payment cannot be more than $2,133 per month.
Your maximum monthly debt payments (rule of 40)
Finally, your total debt payments, including your housing payment, your auto loan or student loan payments, and minimum credit card payments should not exceed 40 percent of your gross monthly income. In the above example, the couple with $80k income could not have total monthly debt payments exceeding $2,667. If, say, they paid $500 per month in other debt (e.g. car payments, credit cards, or student loans), their monthly mortgage payment would be capped at $2,167.
It may take time to learn about mortgage terms and rates, but it’s worth it to make an informed decision and the peace of mind knowing you made the best long-term financial decisions.