Is This Your Situation: Thinking About Purchasing Your First Home?
It's not unusual to angst over your first home purchase. After all, it's a huge investment, and it determines where you'll be living for the next several years. How can you be sure that a home purchase is the right move for you? There's no way to know what the future holds, but these four questions can give you an idea of whether you're on the right track:
How long do you want to live in your area? Buying a home can be a profitable investment if you pay off the interest on your mortgage and start building equity. However, if you move out less than five years after you move in, you may spend more on settlement fees than you save on rent.
Are you in debt? Lenders will consider your debt-to-income ratio when making mortgage decisions. That's your total monthly debt payments, including the potential mortgage, divided by your monthly income. The lower your DTI, the better your interest rates will be and the more money you'll be able to borrow. If it's higher than 50%, you probably won't be able to get a loan at all.
How much do you have saved? The most common advice on down payments is that they should be 20% of the home's price. Some lenders have first-time homeowner programs that allow for a lower down payment, but remember that those programs come with higher monthly bills. Be sure to save some money for settlement fees and to furnish and renovate your new home.
How stable is your income? If you're a freelancer or self-employed, you may find it hard work to convince a lender that you're ready to make regular payments. But even if you draw a paycheck, remember that life is uncertain. If you regularly find yourself worrying about being laid off or your company closing, now is not the time for a home purchase.
This is just a summary. There are various programs that may make it easier for first-time homebuyers, and the situation can vary by location. When facing a big decision like a home purchase, it's normal to worry. However, our experienced brokers can help you think it through. To get our perspective and a sense of where to start, give us a call today.