Moving into your own place can be exciting and frightening at the same time. The American Bankers Association suggests considering the following questions when choosing your own home. Learn more on available home loans here.
- How much money do you have saved up?
Start with an evaluation of your financial health. Figure out how much money you have for a down payment or deposit on a rental. Down payments are typically 5 to 20 percent of the price of the home. Security deposits on rentals are usually about one month of rent and more if you have a pet. But be sure to keep enough in savings for an emergency fund. It’s a good idea to have three to six months of living expenses to cover unexpected costs.
- How much debt do you have?
Consider all of your current and expected financial obligations like your car payment and insurance, credit card debt and student loans. Make sure you will be able to make all the payments in addition to the cost of your new home. Aim to keep total rent or mortgage payments plus utilities to less than 25 to 30 percent of your gross monthly income. Recent regulatory changes limit debt to income (DTI) ratio on most loans to 43 percent.
- What is your credit score?
A high credit score indicates strong creditworthiness. Both renters and home buyers can expect to have their credit history examined. A low credit score can keep you from qualifying for the rental you want or a low interest rate on your mortgage loan. If your credit score is low, you may want to delay moving into a new home and take steps to raise your score. For tips on improving your credit score, visit aba.com/consumers.
- Have you factored in all the costs?
Create a hypothetical budget for your new home. Find the average cost of utilities in your area, factor in gas, electricity, water and cable. Find out if you will have to pay for parking or trash pickup. Consider the cost of yard maintenance and other basic maintenance costs like replacing the air filter every three months. If you are planning to buy a home, factor in real estate taxes, mortgage insurance and possibly a home owner association fee. Renters should consider the cost of rental insurance.
- How long will you stay?
Generally, the longer you plan to live someplace, the more it makes sense to buy. Over time, you can build equity in your home. On the other hand, renters have greater flexibility to move and fewer maintenance costs. Carefully consider your current life and work situation and think about how long you want to stay in your new home.
Buying your first home probably seems like a far away dream, but you may be surprised at how little you could pay up front with financing that works for you. Your monthly payments could even be the same or less than your rent!
If you are interested in learning more about buying a home, complete our online application so we can get to know your financial situation. Once we receive your app, one of our Home Loan Experts will contact you to set up an appointment. There is never an obligation or a sales pitch. We are here to give you the advice based on your situation. Maybe you need to work on paying off debt or raising your credit score or maybe you are in a great place to buy right now. You'll never know if you don't take the first step.