You are therefore ready to abandon your owner and the noisy neighbors who live above you. But instead of looking for somewhere else to rent, have you considered (like, seriously considered) buying?
For several people, to buy a house is one of those bucket list items – something you’ll accomplish later – so the idea of starting the process here and now might seem out of the question. But there is a chance that you are actually in a better position than you think.
Of course, every local real estate market is different and your dollar will stretch further in some cities. Half a million dollars in Waco, Texas will net you well over $ 500,000 in San Francisco. Therefore, it is important to be realistic when choosing between renting or buying. In cities like San Francisco or Los Angeles, leasing can make more financial sense than buying. Take a look, however, at the average price of a house in your neighbourhood– maybe you can afford to buy after all!
Then take a look at the following explanations, which will help you think about your financial snapshot. You never know: you may be telling yourself a homeowner much sooner than you thought possible.
1. Your salary qualifies you for a mortgage
When determining if you can buy a house, your salary is one of the first numbers to take into account. But don’t fool yourself into thinking that you can’t afford a house just because you’re not making a six-figure salary! Use this quick equation of Lauren Anastasio, a certified financial planner at SoFi in San Francisco, to determine a realistic mortgage amount:
Multiply your annual income by 2.5, then add your down payment amount to that number. Your total amount is the maximum mortgage you should go for.
For example, if you’re making $ 80,000 a year, you’re looking at a safe bet on a mortgage of $ 200,000, plus whatever you think you can save for that down payment.
Anastasio says you should also factor in the regular housing expenses that come after the deal is closed, including taxes, insurance, maintenance and repairs, and homeowners association fees.
Watch: Animal Lover’s Guide to Buying a Home
2. You can afford to deposit at least 3%
Most first-time home buyers are intimidated by the idea of having to deposit a lot of the change. However, the traditional 20% down isn’t your only option.
“The ideal down payment amount is 20% of the price of the house, because it is the minimum amount required to avoid pay for private mortgage insurance (PMI). But that’s not realistic for most homebuyers, and it shouldn’t stop them from owning home, ”says Candice williams, a real estate agent with Re / Max Space Center in League City, TX.
Other avenues to mortgage loans include conventional loans, which require a minimum of 3% reduction, and Federal Housing Administration (FHA) loans, which can go as low as 3.5%. And if you are a veteran, you can qualify for a VA loan with no down payment. So take a look at your savings account and browse real estate listings in your area. You may just find that your years of savings actually made you eligible for a mortgage.
3. You have a little debt
Another common misconception among first-time home buyers is that prospective homeowners must be debt free to get mortgage approval. But don’t worry, you can buy a house even if you are still paying off your student loans.
“Lenders like to see a small debt. By paying off a car loan on time, you show the bank that you are a responsible borrower, ”explains Andrew Helling, editor at REthority.com.
That being said, Williams emphasizes that while it’s okay to have current debt, first-time homebuyers shouldn’t be looking to add a mortgage if their current debt exceeds 7% of their monthly income. This is because most lenders will not approve loans over 28% of a borrower’s monthly income and are legally prohibited from granting mortgages equivalent to more than 35%.
“Either pay off those debts or increase your income in order to get loan approval,” says Williams.
4. Your credit score is over 580
Another number that lenders look at to determine your creditworthiness is your credit score. A perfect credit score is 850, and anything above 740 is considered excellent, but you don’t have to fall within that range to be approved for a loan.
You “absolutely” can get a mortgage, says Helling, “as long as your credit is over 580 – the threshold for most loans – and you have enough money left to make mortgage payments and mortgage payments. debts. “
If your credit score drops below 700, lenders will start to wonder if you are a risky investment as a potential borrower, and getting a mortgage will be more difficult. But, if your score is above 580, there is still hope in the form of an FHA loan or some other type of conventional loan. The FHA requires a minimum credit score of 580 (and other requirements) to qualify. Having a bad credit rating means you’ll likely have to pay a PMI, but the pros of owning a home will far outweigh the cons.
5. A starting home (if not a forever home) is close at hand
Some first-time homebuyers mistakenly assume that the first home they invest in has to be their forever home. But don’t let that idea deter you from buying a modest starter home, even if you soon outgrow your new digs.
After a few years of homeownership, you will hopefully start to build equity, either by increasing the value of your property, or by reducing your debt. Then, when your family gets bigger and you need to buy a bigger house, you’ll have a quantifiable asset that you can use on your next real estate purchase.
What you shouldn’t do is buy a house that you can’t yet fill, hoping your lifestyle will catch up with you later. It can be a recipe for disaster.
“Never buy outside of your means,” says Helling. “Don’t buy a house you can’t afford, assuming that a promotion you plan in a few years will end up paying off the mortgage.