So you or someone you know is thinking about buying their first home? What an awesome milestone to reached! While I’m sure you’ve got big dreams and even bigger opinions about what you want in your first home, the first step to buying is to finding out just how house much you can afford.
Prepare For a Budget Gut Check
Lenders will use several factors when determining how much house you qualify for. One of the most important factors – especially in today’s tight lending market – is your credit score. The interests rate you pay will be tied to your credit score – so having a better one means you will pay a lower interest. For Example: a credit score of 720 through 740 could give you a better interest rate, while a credit score lower than 620 may result in a higher interest rate and in some cases, the lender may not authorize a mortgage at all until the credit score is improved.
If your credit score is within a range, it’s important to secure your pre-approval letter. With this letter, you’ll know how much you can borrow and how much you can afford.
Now that you know how much you can afford, find out if it fits into your monthly budget. Track your income and expenditures for six months and factor in your monthly mortgage principal, interest payment, taxes, and homeowners insurance.
Fannie Mae recommends that buyers should not spend more than 28% of their income on housing costs. To go much past 30% on your monthly income and you risk not being financially comfortable in your new home.
Understand the Up-front and Additional Costs
Find out how much you’re going to need to put toward the down payment. This can range anywhere from 3.5%, 5%, 10 – 20 percent of the home asking price. Be sure to factor in the cost of an inspection, which can range between a few hundred and several thousand dollars, and important closing costs which are often two to six percent of the mortgage amount.
Save, Save, Save
If you’re not sure you can meet the down payment requirements, take a look at your budget and find areas where you can cut. Can you eat out less, cut coupons, and watch grocery store spending? Rent DVDs instead of going to the movies or make it a game to see how inexpensive you can make date night.
There are many resources available to give first-time buyers ideas on how to save money including the Internet and our team! Every step you take to make sure you are in a financially stable condition before you purchase your first home will give you a solid foundation for success.
Our team is prepared to help you buy a home that fits your needs and your budget. Give us a call to learn about the great homes that we can show you today!
Put Together a Wish List! home buyer’s wish list