Buying a home is a major life milestone, and with it comes a lot of financial scrutiny and planning. The initial part of the process of getting your mortgage is paying close attention to your finances. It is crucial you don’t do anything that will cause your mortgage to be denied. You need to have your financial situation as stable as possible—so don’t:
- Apply for new loans or make large credit purchases
- Change jobs
- Make large deposits you are not able to document
- Stop paying your current bills
- Fall behind on your rent
You can shop around and find mortgage deals with monthly payments either near or lower than your rent payment, but that is not the full cost of owning a piece of property. Along with the principal and interest payments to your loan, you will also be responsible for the annual property taxes. You also need to purchase home insurance to cover any damages that may happen due to storms, theft, fire, or other unfortunate circumstances.
Things like replacing a roof, fixing a plumbing issue, and keeping the yard maintained all fall on the shoulders of the homeowner, who was your landlord when you were renting—but now that’s you. An average among to budget toward maintenance is about 1.5% of the home’s market value.
Before you start looking for your new home, you’ll need to have a good idea of how much you can comfortably afford. When setting a budget, keep in mind that your monthly mortgage payment is not the only expense to consider. Remember to take into account any credit card and installment loan payments, utilities, taxes, and insurance.
Don’t let the reality scare you away from home ownership. You just need to be prepared. Decide if you can stretch your income as far as possible and get the most home that they can for your payment. Or find a home loan that fits your needs and leaves you more money for investing, traveling and other expenditures. It is up to you to decide how much you are able to pay per month for a home.
Some loans, like the VA mortgage and the USDA loan, will allow you to purchase a home with a no down payment at all. Other loans, like FHA and the similar HomeReady loan from Fannie Mae, will ask for at least 3% to 3.5% of the home’s selling price to be paid as a down payment. Depending on your credit scores, loan type, and the rest of your financial information, some lenders could require as much as 20% down payment in order to secure financing for you.
Remember, your down payment money should be separate from your savings. It’s not ideal to use all of your money towards the down payment and have no reserves after the house is purchased. Unexpected situations happen all the time, and you should have some funds available to deal with them home related or not.
Reviewing your credit report before you present your information to a lender will give you a chance to work on any errors. It also gives you an idea of what to expect when the lender looks at your credit rating. Discuss your budget with the lender, as well as your future plans, so that the mortgage loan officer can put together the best lending options for your needs.
How Much You Can Afford
Pre-approval is a useful step to take before starting your search for a home. By sharing some information about your income and debt, a lender can provide you with a letter stating how much you’ll likely be able to afford to borrow. In a competitive home-purchase market, sellers prefer offers from pre-approved buyers.
While it is possible for a seller of a home to pay closing costs on the transaction, this is not always the case. You should be prepared to pay a portion of, or all, of the closing costs for the purchase of your home. The total amount will vary based on a few factors. Your mortgage lender can provide you with an estimate of the closing costs and explain each item to you.
Buying a home should be a financial move in a positive direction for you. Taking the time to research your finances, work with a real estate agent, and study potential neighborhoods will all take some effort and time to complete but will be worth it for your future.
Lone Star Financing Can Help
At Lone Star Financing, we are a Texas-based mortgage company. We want to help you through every step of financing your new home. Fill out the quick contact form or call Lone Star Financing today at 1-800-960-4565 to speak with one of our Texas mortgage specialists and get a free good faith estimate.