How Much Home Can You Afford?
First time home buyers are faced with a maze of financial decisions. It's a daunting task to sort through mortgage rates, credit scores, and monthly payments to determine exactly what your price range will be for your future home. Although bankers and real estate agents are there to assist you, it helps to start with a general idea of your bracket. Consider the following things when trying to make sense of your own cents.
First of all, how much of a down payment will you be able to make? Down payments are the reason why first time home buyers are well advised to sack away cash for at least a year before they purchase. The more you can put down up front, the less you have to borrow... and the less interest you'll accumulate.
Once you figure out your down payment, do some research. This is where banks and real estate agents can be particularly helpful. You'll need to get a feel for what kind of interest rates you could get on a home loan, as well as how much you can expect to pay in property taxes and insurance. Once you get an idea of what those numbers would be in your area and with your credit standing, you can get a rough idea of what kind of mortgage you may be looking at. Take a possible price for a home you may be considering. Subtract your down payment from that amount, and then add on the accumulation of interest, property taxes, and home insurance. This is the principal amount you will need to borrow in order to purchase that home. Now you need to discover whether or not you're eligible to borrow that amount, and if you can afford the payments it would require.
Keep in mind that when you do apply for a mortgage, the amount you're able to borrow will be influenced by more than just your credit score. Lenders will also investigate your wages, your expected earnings in the near future, and any outstanding debts. All of this will factor into the calculation of how much you're able to borrow, and what kind of rates you will receive. If the loan for which you're approved turns out to be less than what you'll need for the home you're considering, you must either find a different lender and try to recalculate your terms, or find a less expensive property.
If you're considering purchasing a home in the future, start cleaning up your credit now. Work out payment plans on any outstanding debts, and get a copy of your report so that you can contest any errors. It's also a good idea to start saving for your down payment well in advance. Having a good credit score and cash in the bank are the two most effective ways to get a good loan with a decent rate. If you don't have those two things yet, you should consider putting off your home purchase until you do.
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James Loftis
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