Home Buying Guide
OK so buying a home is a big deal. As a matter of fact, it’s the American Dream as some people put it. When you buy a home you should be totally prepared for what is to come and you should understand the whole process so that you make educated decisions every step of the way.
Step 1: Am I ready to buy a home?
This is the million dollar question. Do you know if you are ready to buy a home? There are many reasons as to why you should buy a home, you just need to determine if you are in the right position to do so. The worst reason to buy a home is buying because everyone else is! Yes this sounds silly however there are a lot of people who buy homes for this simple reason. Here are the questions you need to ask yourself to determine if you are ready to buy:
- Would my new mortgage payment be affordable compared to renting or is my rent going up so rapidly that it makes more send to buy?
- Will buying a home change my lifestyle negatively because I will have a big payment to make or will it help me because I’m wasting my money monthly by paying someone else’s mortgage?
- If I am buying a home, will I be here for at least 5 years or am I going to be moving around a lot?
Step 2: Determining if you are Financially Prepared
OK let’s shoot straight here, buying a home may require a substantial financial commitment. Here at Equinox Home Financing, we call this I.C.E. which stands for Income, Credit, and Equity.
Let’s talk about income. When you buy a home, you must be able to afford your monthly payment. This is determined by what we call a Debt-to-income ratio. We simply take your debts reflecting on your credit report, add those monthly payments to your new mortgage payment and divide it by your gross monthly income. From this formula, we will get a percentage that will tell us if you can afford your home. Typically, banks want to see that your DTI is less than 45% which means your total debts can be no higher than 45% of your total income.
Next is credit. Depending on the loan program you can qualify for, there are different types of credit requirements. For example, if you are a Veteran, these loan guidelines are pretty forgiving as far as credit scores go but if you are doing a jumbo loan, these loans are strict and require premium credit scores and history. Here at Equinox Home Financing, our typical loan requires a 620 Credit Score or higher.
Lastly, let’s discuss equity. Obviously when you buy a home, a down payment is required. Typically, a 20% down payment is the traditional amount that you would need to buy a home however it doesn’t mean this is the norm. Today there are many programs available that require less down payment however there will be Private Mortgage Insurance also known as PMI. PMI will help you put less down however the monthly PMI payment will be added to your normal mortgage payment making it higher. PMI is a great tool so that people can buy homes with less than 20% down. Here at Equinox Home Financing, we offer down payment assistance programs for those that qualify. This means you can buy a home with as little as 1% or if you qualify for a grant you can buy with $0!
Step 3: Are you emotionally ready?
No when we talk about emotions, let’s be specific. As a renter, if your rent goes up you can move. If your pipes burst, you call the landlord. These are the benefits of being a renter however when you own a home things change. If a repair is needed, you will be responsible for getting repairs done. Not only will this impact you financially but emotionally as well. Of course, having the financial flexibility to cover those unexpected things is important, but don’t overlook the importance of having the mental and emotional capability of dealing with them responsibly when they arise. Everything could be peachy for months, and then three maintenance issues might spring up in the same week. Stress management and problem-solving skills are home ownership biggies.
Step 4: Will owning payoff in the long run?
Depending on where your home is located or where you decide to buy, buying a home might be more affordable or make more sense than renting. Again, when you make a rent payment, you are paying off someone else’s mortgage for them. When you buy, you are paying off your own mortgage and are investing into your own future. As a homeowner, the beauty of it is that whether homes go up or down in value, at some point if you keep making your payment your home will be paid off when day and you will be the owner of a huge asset that you retire off one day.
Hope fully this guide will help you determine if buying a home is the right choice for you. Call us or apply today so we can answer all your questions or concerns.