Good Questions About Home Buyuing

What mortgage payment can I afford?

A few years back, the most common answer to that question was that anyone could afford a home that cost two and half times their annual salary. Today, however, many people finance the purchase of the home, so the question is now how large a mortgage can one afford and how much of down payment can they make.

Lenders use special formulas to determine the size of a mortgage loan you can qualify for known as qualifying ratios. Normally, these ratios are figured on your gross monthly income, your long-term debt, and your housing expenses. For a conventional mortgage, your housing expenses should not exceed 25% to 30% of your gross monthly income. Housing expenses are such things as insurance, taxes, interest, and mortgage principal. When you add your housing expenses to your long-term debt it should not be more than 33% to 38% of your gross monthly income. Long-term debt is any debts that will not be paid in full over 11 months or longer such as a car loan or student loan.

When you do begin to search for a mortgage, be sure to check mortgage rates and terms that the various lending companies offer. You can then be pre-approved or pre-qualified by the lender. This will let you know exactly how much they say you can afford to pay out to purchase a home.

How much down payment do I need to buy a home, if any?

Most of the time lenders require a 20% down payment. You can find several other mortgage programs that will allow you to have a much smaller down payment, such as Veterans Administration (VA) and Federal Housing Administration (FHA). For a VA loan, you must be a qualified veteran and in many cases, you will not have to have anything for a down payment. A FHA loan in some cases only requires a 3% down payment.

If you do not have the required 20% down for a conventional loan, most lenders will require that you purchase private mortgage insurance. This PMI, as it is called guarantees to the lending company that if you cannot pay back your loan the lending company will still receive their loan amount. Normally PMI premiums are $45 to $65 per $100,000 borrowed. The cost of the PMI is decided by how much your down payment, the type of mortgage you are getting, and if you will be paying monthly installments on the loan or if you will be paying for the home in one lump sum at the time of closing. You may also ask the lender if he will increase your monthly mortgage payments if you do not prefer to get private mortgage insurance. In this case, your monthly mortgage payment will increase by the amount you would be paying with PMI.

You may find a few lenders that offer no down payment or 100% financing without any type of monthly insurance premium. Generally, you will have to pay higher closing costs and interest rates with these types of loans and it may be harder to qualify.

How do I purchase a “for sale by owner” home?

Buying a home that is for sale by the owner is when you as the buyer and the seller negotiate the purchase of the home. There is no real estate agent involved in the procedure. Most of the times, you can purchase a for sale by owner home cheaper than one that is through an agency because the home owner does not have all those extra fees and commissions applied to the price of the home. Buying the home is exactly the same as if you were using a real estate agent in the fact that you will still have to do all the same paperwork, go to closing, etc…

If I have declared bankruptcy, can I still buy a home?

A bankruptcy is not a death trap! Of course, a bankruptcy puts up an alert to lenders and makes them a bit more cautious, however, if you are making the right moves to clear up any bad credit you may have, you can still find a lender that will give you a loan to purchase a home. More than likely, you will have to pay a higher interest rate. The best thing to do is to work at paying all of your debts on time, get rid of any bad credit that is still there after the bankruptcy, and you will be able to get a loan once a lender sees that you are on the right track repairing your credit. A bankruptcy will stay on your credit history for 10 years. This will give you plenty of time to start putting good credit on your report. Begin with a low interest credit card, purchase small amounts and pay it promptly when you receive the statement. This will start your good credit. It will not take the full 10 years to show that you are willing to pay your debt on time and that you are creditworthy.

Should I purchase a home or stay renting?

This is a personal question that everyone asks sometime in his or her life. There are advantages and disadvantages on both sides of the fence. Renting a home you are not building equity in your home, you are paying a landlord and he is reaping those benefits. However, he is also responsible for all maintenance on the home. If you are purchasing a home, you are building up equity in your home and after a few years, you could sell your home and maybe make a profit, however, you will also be responsible for all maintenance and upkeep of the home. You will have to weigh all the costs involved in purchasing a home over renting, taxes, maintenance, etc… that you are not paying as a renter. If you do decide you would rather own that rent, start saving and be sure you can afford the down payment, the closing costs, and the higher monthly payments or you will default on your loan and have nothing to show for your effort.

I am not married; however, my partner and I wish to purchase a home together. Is this wise?

It may look great to a lending company because you may be able to qualify for a larger loan than a married couple. However, you should take into consideration what would happen if you decided at a later date to go your separate ways. The law does not deal with unmarried partners the same as they do with married partners when it comes to the division of property if you decide to split or if one of you passes away. You need to protect both of your interests in case something unforeseen happens down the road. You can own property together in different ways, which include joint tenants with rights of survivorship, tenants in common, individually in just one name, and in trust.

It would be best for both of you prior to purchasing a home, to speak with an attorney to protect your rights.

What is the Homestead Act?

Enacted in 1862, the Federal Homestead Act offered free 160-acre parcels of land to early settlers, or the common title “homesteaders”. This particular act was repealed in 1977; however, many states have their own homestead laws. To learn more about the homestead laws in your state contact a real estate broker or an attorney. You can then learn if you can take advantage of the homestead laws in your state.