Can you afford a house? How can you find an affordable home? Well, the truth is this: you can’t find that out simply by reading a blog post. But by learning more about the steps you can take to find a home you can afford, you will find that buying a home is less of a mystery, and really just a process.
Before you do anything else, you need to speak with a lender and find out how much they would be willing to lend you, along with the terms. Lenders start the qualifying process by assessing your income and debt ratios. Most loans will allow you to use 31% of your monthly gross income as your housing payment. This includes your mortgage, interest, taxes and insurance. It might also include homeowner’s association dues if applicable. Lender programs can vary a little, but this is a general guideline. The next aspect they consider is your total debt. This includes all recurring debt, such as an auto loan, student loans, credit cards, installment loans, and anything else that you pay each month. These monthly payments normally cannot exceed 43% of your monthly gross income.
It’s important to note that in addition to the loan costs, you have to include utilities, auto expenses, food or entertainment, etc. as you consider a home purchase. Just because you can qualify for more, you might not want to spend as much for your house payment. You will need to consider your lifestyle and other commitments when determining a payment that you are comfortable with, not just one for which you can qualify. You might also want to consider looking at a home that is listed as selling as is because while there might be some work involved, the sellers might be willing to offer a lower price.
Affording a home loan also includes a down payment. There are many kinds of loan available. A FHA (Federal Housing Authority) loan requires a mere 3.5% down payment and that can be a gift. There are a variety of loan options and assistance programs for borrowers with low or moderate income, and other specific situations which might help as well. A VA (Veteran’s Administration) loan for instance has no down payment. States and some cities also have down payment assistance programs to help, if you qualify. FHA also allows your down payment to be a gift from a family member.
Remember that you are buying your first home, but not necessarily your last. Stay flexible about not only your criteria for the house and the community. Watch for up-and-coming neighborhoods which might be a good option in a more affordable price range. You might need to consider a smaller home or longer commute to keep your cost in a comfortable range.
There are financial advantages to buying a home as well. Part of the consideration of buying a home has to include a visit to your tax professional. Learn how the mortgage interest and other costs can be tax deductible and the benefit of this tax break on your overall financial situation. You might find that even though your mortgage payment is higher than your current rent you will save money overall, due to the tax advantages. Remember also that your mortgage payment will not change over the life of the loan (assuming a fixed-rate loan) and that as rents continue to rise, you are protected from higher housing costs by locking in this expense. Owning a home has always been part of the American Dream. Finding an affordable home is not as difficult as you might think. Working with your real estate agent, keep an open mind, do your research, and learn all you can about the process; in this way, you will find that you can afford a home of your own. .
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