Buying a Home - Today's Rare Opportunity
Mortgage rates are at 50-year lows. Home prices are affordable again for thousands of families. Since nobody knows how long this will last, today's market is a rare buying opportunity for working families with stable incomes and good credit.
But too many qualified borrowers are sitting on the sidelines because of misinformation about the new rules of the road for getting a mortgage.
Buying a Home - New rules of the road
New Rules of the Road
A qualified borrower should have:
A stable income
A good credit history
A common-sense down-payment; generally, about five percent of the purchase price for a conventional, conforming mortgage. (Fortunately, there are down-payment assistance programs for qualified borrowers.)
Documentation – responsible lenders today will want documentation verifying your income (like W-2 forms, tax returns), employment, credit history, and assets – such as bank statements – to verify savings.
Under the new rules of the road, the lender must also obtain an impartial third-party appraisal that complies with new rules to verify that the value of the house you want will support the mortgage you need to finance it.
Getting Pre-Approved
Anyone still unsure about the new rules should ask a reputable lender to pre-qualify them for a mortgage. Think of a pre-qualification letter almost like a driver's permit for the new rules of the homebuying road. A mortgage pre-qualification letter can:
Confirm you can qualify for a mortgage;
Tell you how much you can expect to borrow;
Make you a stronger home shopper since sellers won't have to worry about whether you can qualify for a mortgage.
During the pre-qualification process the lender will review your credit, financial, and employment information. There may be an application fee. Although mortgage pre-qualifications are usually only good for a limited time they are still worth getting. The reason: even though you will need to apply for a mortgage once you find a house to buy, your pre-qualification letter helps clear the way by telling home sellers you're road-tested for the most affordable mortgage market in 50 years.
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Is Homeownership Right for You?
The answer depends on your financial situation, your future plans, and what you hope to do for yourself and your family by buying and owning a home.
Let's start with your financial situation. Ask yourself the following questions:
1. Do you have a steady, reliable source of income and a steady employment history for at least three years?
2. Do you have a good credit history and understand how to manage your credit?
3. Is your total debt manageable? Can you pay all your bills on time and still afford to take on the costs associated with homeownership?
4. Can you save money for a down payment and closing costs or you have access to other sources of funds, such as an employment bonus, tax refund, or a gift from a relative?
5. Do you have adequate savings to weather an unexpected loss of income or an emergency?
Next consider your future plans. Can you balance the costs of owning and maintaining a home (like repairs and maintenance) against other major expenses, such as buying a car, taking a vacation, saving for college or raising a family?
Finally, consider how much you can afford to spend buying a house as well as the risks and rewards of becoming a homeowner. If you're not sure how to go about calculating how much you can afford on a home, contact us for a free consultation. We're here to help.
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Maintaining a Home
Home maintenance and repair is a critical part of homeownership. Proper maintenance of a home:
- Keeps the property value stable.
- Saves money, because small issues addressed during regular maintenance do not turn into bigger, more expensive issues later.
- Helps sell a home, since potential homeowners are more likely to purchase a home that doesn't require large projects and has been well cared for.
Plan to do a comprehensive "audit" of your house annually to see what work needs to be done. Make home maintenance part of your budget – experts estimate that 1–3% of the market value of the home is the typical amount spent on maintenance annually.
Plan ahead – if you know that your hot water heater is old and probably only has a year before it needs to be replaced, start budgeting for its replacement now. Keep track of the age of appliances, the roof, decks, etc. By knowing when things are likely to need maintenance or replacement you can avoid unpleasant, and expensive, surprises that can impact your finances.
The Home Maintenance Warning Sign
An early warning sign that you may have financial challenges is when you have difficulty finding money for home maintenance. If several years go by without proper maintenance the house may begin to lose its market value and small fixes may turn into major repairs. This can be a warning that you are unable to afford your home.
If this happens to you, don't ignore the problem. Take an honest look at your financial picture. If you have been lagging on home maintenance because you have reallocated funds to non-necessities, now is the time to make home maintenance a priority before problems arise that are too expensive to fix. However, if home maintenance has been neglected because there just isn't enough money, you may be overextended.
Consider your options and talk to a housing counselor or credit counselor. If you find yourself in a house too expensive to care for properly, you may be able to sell it and downsize before major expenses and financial set backs limit your options.
*Courtesy of Freddie Mac
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