READY TO BUY
if the Time is Right
The first step in purchasing a home is deciding if you are ready. Consider the
housing market, interest rates, your purchasing power, and how long you plan on
staying in the area. You'll also want to think about upcoming expenses and
future income. Are you planning on going back to school or buying a car? Do you
expect your income to rise or will you be taking time off to raise a family?
Figure Out How Much You Can Afford
Once you've decided to purchase a home, you'll need to know how much you can
afford. Keep in mind that buying a home involves both upfront and ongoing
costs. Putting less money into a down payment can free up money to remodel or
purchase new furniture but will result in larger monthly payments. Paying more
upfront, on the other hand, will mean lower monthly payments.
down payment is the amount of money provided upon closing that is applied
toward the cost of the home. A common myth is that you must put at least 20%
down. Many lenders offer a number of loan programs requiring only 3-5% down and
some with no down payment at all. See the sources of funding section below for
more information on low down payment loans.
Closing costs are typically 2-3% of the purchase price. These costs include
fees for appraisals and credit reports; homeowner's insurance; initial costs of
establishing an escrow account; points; and other fees associated with the
The monthly payment, also known as PITI, includes principal,
interest, taxes, and insurance (homeowner's and mortgage). Surprisingly, the
monthly payment is often comparable to a monthly rent payment. Purchasing a
home comes with the added benefits of tax savings and equity. Other ongoing
costs may include utilities and maintenance. A good rule of thumb is to allow
no more than 28%-30% of your gross monthly income for the monthly payment and
no more than 36%-40% for you total monthly debts (including car loans, student
loans, credit card payments, PITI, etc.)
from family and friends can be used toward the purchase of a home. To include a
gift as part of your assets, you'll need a letter stating the amount of the
gift and confirming that it does not need to be repaid.
Both federal and state governments offer programs to assist
homebuyers. FHA loans, insured by the Federal Housing Administration, are
popular among first-time buyers but anyone can apply for an FHA loan. VA
loans, guaranteed by the Veterans Administration, are available to qualified
veterans. Both programs offer low and no down payment options.
If you feel that you will not qualify for a loan on your own,
consider taking on a co-borrower. A co-borrower shares the burden of the loan
as well as equity in the home.
Your Premier Living agent has
great contacts in the financial industry and can put you in touch with several
great lenders to start the ball rolling.