We at Kathy Toth & Team are fortunate to have a great working relationship with several trusted lenders in the Ann Arbor area, one of which is Steve Stork. Steve comes to us today to share some knowledge about things that you should consider before purchasing a home.
Purchasing a home is likely to be the largest financial transaction in one’s life. Before beginning the home search, it’s important to first step back and take a look at the big picture. A few questions below can help add perspective to the main question, “Am I ready to own a home?”
How much can I afford to purchase?
It’s important to create a monthly budget to have an idea how much is available to allocate towards your mortgage payment. This will also confirm what remaining cash flow is available to add to savings once all monthly bills are paid. Mortgage calculators are a great way to identify what your monthly housing payment would be, which will also help to identify what price range and area you should be looking in.
Have I saved up enough money?
Lending institutions will review assets up front to confirm you have the required amount to qualify/purchase a home. A required down payment can range between 3.5% to 20%+. The higher the down payment means less risk to the bank, and ultimately better loan terms and interest rates. Beyond the down payment, it’s important to plan for life’s unexpected events, such as a required home repair, injury, or job loss. Having additional savings above and beyond the required amount needed to purchase a home will help to offset unforeseen risks.
Is my credit score high enough to qualify?
The purpose of a credit score is to show ones ability to meet their monthly obligations in a timely matter. The minimum credit score requirement will be determined by the type of loan you’re applying for. The highest possible credit score available is an 850, however any score above 740 is considered excellent, and is eligible for the best interest rate offered. Most individuals in this credit score range are applying for a conventional loan. Many times an individual is just starting to establish their credit or in the process of repairing their score and may not qualify for conventional financing. Because of this, there are government loans, such as FHA and VA. These loans offer lenient financing terms, which in turn help broaden what financing terms can be offered to a home buyer.
How long do I plan to live here?
There is no crystal ball when it comes to life’s plan and ones future. Even so, it is still important to assess if you see yourself in a particular home and area for 5, 7, and even 10 years. Important questions to ask yourself would be – Do I have enough space to start a family here? Do I have any potential of being relocated for work? Is this a neighborhood where I want to raise children? On average, it takes roughly 5 years before one begins to build equity in a home. If you’re uncertain if you can see yourself in a home for at least 5 years, it may be best to rent. Everyone’s situation is different. If you’re still unsure of renting or owning, it may be helpful to reach out to a Specialist on with Kathy Toth and Team, who can help assess your options so that you can make the best decision possible.
Why is it important to work with a Real Estate Expert?
Before beginning the home search, it’s important to sit down with a Real Estate Agent so that you can identify what is most important to you in a home/area. What are some of the, “Must haves” and what would be nice, but not necessarily a requirement. Your Real Estate Expert has access to the multi-list, and can send you a tailored home search criteria based off your expectations and price range. Having a Real Estate Agent represent your interest on a purchase is at no additional costs to you as the buyer. It’s important to work with an expert, such as Kathy Toth and Team, as they have the ability to negotiate the best possible home price for you.
If you’re on the fence about purchasing a home or not sure if you’re quite ready, call an expert with Kathy Toth and Team today for a free consultation.
Steve Stork is a Senior Loan Officer with Summit Funding, Inc. He can be reached at firstname.lastname@example.org.