Are You Financially Ready to Purchase a House?
Home ownership is a lifetime milestone, it gives you a sense of fulfillment and helps boost your self-esteem. Home ownership is a long term investment and should not be taken lightly. The most important factor when thinking about becoing a home owner is the present state of your finances.
Before you start shopping for a house, take into consideration the following factors:
Have you set aside enough money for the down payment? The amount you will need will vary based on the price of the home and your lender. Zero down mortgages are possible, but the interest rate is typically very high, thereby increasing the amount paid out over the life of the loan. Private Mortgage Insurance (PMI) is typically required for this type of loan, again increasing your monthly payment.
How high of a mortgage payment can you afford to make? If you choose a fixed rate, your payment would remain consistent throughout the period of the loan. This type of loan is more favorable for future financial planning. Adjustable rate mortgages (ARM) make it a bit trickier to predict your future mortgage payments based upon the fluctuatng interest rate thoughout the lifetime of the loan. This type of loan could be risky if interest rates rise and your payments increase significantly higher than anticipated.
The security of your financial future is paramount when acquiring a mortgage. You would not want to enter into this long term investment without stable employment and a definite career path. Most banks and lending companies require a borrower to have been with the same employer for at least two years before considering a loan of this nature. Secure financial footing is key when applying for a mortgage.
Your credit score is as important as your finances. If you have a low credit score, you'll attract a higher lending rate. This means an increase in the amount paid back over the course of the laon. An excellent credit score of 720 or more attracts the best interest rates and repayment terms. If your credit score is too low, the following will improve it:
- becoming debt free
- removing all inaccuracies from your credit report
- make all monthly payments on time
- avoid applying for new loans and credit accounts
The commitment of home ownership come with financial responsibilites beyond the monthly mortgage payment. Be certain to consider such expenses as property taxes, utility bills and home maintenance costs when calculating your budget.