What Every Home Buyer Should Know
If you're thinking about buying a house now that the market has cooled, ask
yourself these questions first.
1. What monthly mortgage payment can I afford?
As a rule of thumb, your total debt payments, including your
home, should be less than 36% of your gross monthly income. But factors
such as your credit score, monthly income, and assets may allow you to
afford a mortgage with a higher debt-to-income ratio.
Before you take the plunge, consider other ongoing expenses, such as homeowners
insurance , maintenance, taxes, and utilities, to make sure
you'll have enough to cover the house payment.
2. How long do I plan to stay in the home?
Most financial planners agree that if it's less than five years, you
should think twice. Why? The shorter your length of stay, the less time you
have to digest closing costs, real estate commissions, and other fees. But you
can find mortgages
tailored to homeowners who move often.
3. Do I expect my income to rise?
Getting a raise or bonus can make you more confident about taking on a
mortgage, but don't be overly optimistic. Consider, too, the possibility of
lifestyle changes — like new additions to the family or a switch from two
incomes to one.
4. How much should I save for a down payment?
Down payments are generally a good idea because they can help lower your
monthly payment. If you put down 20% or more of the purchase price, you'll
avoid paying costly Private Mortgage Insurance.
Some mortgages, such as those guaranteed by the Veterans Administration,
don't require down payments.
5. How much money should I commit to points and fees?
Mortgages come with a variety of upfront expenses. When evaluating lenders
compare their good-faith estimates of closing costs before applying.