Before a person begins the process of buying a house he or she will need to know what they can afford. Typically this comes down to how much of a loan he or she can obtain. One route to take is to get pre-qualified. The pre-qualification process is one in which a mortgage company interviews the home buyer and asks questions about the individuals finances, including debts. An estimate of how much the buyer can afford is given at the end of the interview.
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If your available cash doesn't cover your needs, you have several options. First-time homebuyers can withdraw up to $10,000 without penalty from an Individual Retirement Account, if you have one, though you must pay taxes on the amount. You can also receive a cash gift of up to $15,000 a year from each of your parents without triggering a gift tax.
My tip – STICK TO YOUR PRICE RANGE! We looked at 10 houses in our price range and one house just north of our price range. Of course – the more expensive house looked better. We fell in love with it and we stretched our budget to afford it! We didn’t have a chance to view any other prices in that higher price range either so didn’t know if our offer was too high (it was in hindsight). Just a tip!
A lender will help you determine exactly what you can afford and, therefore, which houses you should be considering. To arrive at a purchase price, you’ll factor in expenses like homeowners insurance, association dues, and utilities to make sure you can comfortably make your mortgage payments. The lender will then identify the total amount of money it's willing to lend you.
While getting legal aid is optional, it is always better to get a professional legal opinion on your closing documents. The complex jargon often mentioned in the property documents is difficult to understand even for the well-educated individuals. For an appropriate fee, opinion from an experienced real estate attorney can offer multiple benefits, including hints of any potential problems in the paperwork. In some states, an attorney's involvement may eventually be required by law to handle the closing.
Note that if our home buyers had saved $60,000 for the down payment, their monthly bill would drop to some $1,600, eliminating the need for mortgage insurance. But in our model, mortgage insurance accounts for just $1,356 annually over 6.5 years in the $60,000-down-payment case -- or $8,800 total. Turns out that's a lot less than saving the additional $30,000 to hit the 20% down-payment mark. And so, if savings are an issue, first-time buyers might take on the insurance in exchange for a lower down payment.
Alternatively, you can put less money down with other options, like an FHA loan through the Federal Housing Administration, which requires less money down and a less impressive credit history but typically comes with a higher interest rate. Veterans are able to take advantage of VA loans, backed by the U.S. Department of Veterans Affairs, which require no money down but have additional fees.
I’m a big proponent of the Dave Ramsey line of thinking when it comes to home ownership – buying a house costs you money in the short term but is an asset in the long term. What does this mean? It means that you need to have money to buy a house. Comparing rent to a mortgage payment is not how you decide whether you should buy a home. In fact, most pros suggest that you have an emergency fund of at least 3-6 months in place and put between 10-20% down when you buy a home.
The fastest-growing metro area in Arkansas takes the No. 5 spot. Residents spend 25.47 percent of the blended annual household income on a mortgage or rent and utilities. Also coming in the overall Best Places to Live list at No. 5, Fayetteville is seeing significant population growth, plus a short commute time and low crime rate contribute to its appeal among the 100 largest metro areas in the U.S.
Some first-time home buyers are naive. Overly optimistic, they think nothing could possible go wrong. If a home has a few problems, they view them as easy fixes and are unrealistic when it comes to the cost and time it takes to fix up the home. Some naive buyers will move to a neighborhood on the wrong side of town, forgetting that you can fix up a house, but you can't change your neighborhood or location without moving.
The best way to pay for a home is with cash! Not only does it set you up for building wealth, it streamlines the real estate process. If you did get a mortgage, you’ll have a final step before you can close on your home: getting final approval. Your lender will dig through the details of your finances to finalize your mortgage. Whatever you do, don’t open a credit card, take on more debt, or change jobs once you’re under contract. That’s a stupid idea anyway! Plus any changes in your financial situation can jeopardize your loan process.
Owning a home is expensive—much more expensive than renting, even if your monthly house payment will be similar or cheaper than your current rent amount. That’s because when you own a home, you’re responsible for all the maintenance and upkeep costs. And those can add up fast! So, before you even think about buying your first home, make sure you’re debt-free and have an emergency fund of three to six months of expenses in place.
Many home shoppers use a lender who was recommended by a friend, family member or real estate agent, and they don’t bother shopping around. But that doesn’t guarantee you’ll get the best rate, or even get a lender who is experienced with loans for your particular situation. The CFPB recommends talking to at least three lenders to get the best loan for you.
Homeowners insurance is a contract that protects both you and your lender in case of loss or damage to your property. The contract is known as an insurance policy, and the periodic payment is known as an insurance premium. The monthly homeowners insurance premium is often included as part of the monthly mortgage payment, with the insurance portion of the payment going into your escrow account.
Chances are your home inspection report will turn up some problems with the home — but, keep in mind, not all repairs are created equal. There are major issues that will likely need to be dealt with before a lender will honor a home loan, such as structural problems and building code violations. In these cases, the homeowner is responsible for repairs before the sale can go through.