In this blog I will
be talking about mortgages!! Usually the
biggest challenge for a first-time home buyer is getting enough money saved for
a down payment, especially in metro area markets here in NC. There is a
solution for that though! Thanks to an array of financing options available
now, it is very likely to find mortgages for as much as 97% of a home’s
value!! To break it down, what this
means is that you could put down as little as $5,441 for a home that costs
$181,375 (estimated median home price in Fayetteville, NC for the month of
Nov.)
The catch? Your interest rate could
possibly increase due to the low down payment. Don’t get scared! Even with a
higher cost there are many more reasons to own YOUR own home. You gain
intangible benefits, build equity through your homeownership, and it is the
single biggest tax break available to many consumers. Use this mortgage calculator to help determine
if you are better renting or buying.
Whew! So after all of that you
decide to buy into the “American Dream” of owning your first home. Here are a
few strategies that would be beneficial to first-time home buyers:
Pay off your debt first
I cannot tell you how many times I
have seen this happen: Johnny and Sue save as much as they can to cover their
down payment but then are faced with the reality that a lender will not fund
the whole amount of their loan due to their existing debt. Here is how it can
be broken down; many lenders will not allow your total monthly debt to be in
excess of 40% of your gross income. (This includes credit card payments,
student/car loans, homeowner’s insurance, property taxes, AND mortgage
payments!)
Instead, a better approach is to
use the extra cash you do have and put it towards eliminating your credit card
debt and other high-interest consumer debt.
Questionable Credit?
Worried that your less-than-perfect
credit may affect your home buying experience? Worry no more, you may qualify
for loans insured by the Federal Housing Authority (FHA). An FHA loan is a
government-insured loan that allows you to put as little as 3% down, and get an
interest rate for about less than a quarter of a point higher than those in the
conventional market.
There is no limit to qualify for an
FHA loan, however, since they are focused on first-time home buyers and
low-to-moderate-income families there is a limit to how much you can borrow.
The amounts vary by region with the overall max being $290,319. In order to get
an FHA government-insured loan be sure that you have a HUD-approved lender, or
at least a mortgage broker that works with one.
How Much Can You Afford?
Initially this may
seem like a simple and basic answer that requires you looking at your checkbook
and number crunching to see how much you can afford for a down payment. While
that is a start it is only half of the 2-part function it takes to estimate how
much you really can afford. The other half is figuring out how much you can
borrow. Your mortgage payment, taxes, and insurance (homeowner’s) should not
exceed 28% of your gross income. On top of that, you should determine how much
cash you have for a down payment and still be able to leave yourself enough to
pay closing costs (which can get to be 3-5% of the total home’s value. And
always put a little cash to the side in the event of emergency repairs once you
move in.
So based on everything we just discussed, the main points to
take with you are
o
First and foremost – PAY DOWN YOUR DEBT!
o
If your credit is not good, look into optional
funding sources
o
Figure out how much you can REALLY afford prior
to buying a home
o
Always keep in mind that if your mortgage (plus taxes
and insurance) should not exceed 28% of your gross income, that leaves you with
only 12% for any excess debt!
