If you are planning to buy your first home soon, the most important thing to do first is determine whether you are financially prepared to do so or not. This is more important than figuring out what kind of home you want or what features it should have. Here are a few signs you’re financially ready to purchase your first home:
1. You can afford to spend 20% to 35% of your monthly income on a mortgage payment. Although 15% to 25% would be ideal, the recommended amount is actually somewhere between 20% to 35%.
2. You can afford to pay a 20% down payment on your home. Although it isn’t a national requirement in the United States yet, in 2011 the government proposed a 20 percent minimum down payment for future home buyers, which is in line with what most people recommend and most lenders request.
3. Your total amount of debt, including your new mortgage AND old debt (credit card payments, other bills) amounts to less than 36% of your income. Though it would be much easier to manage finances if less than 25 percent of your income went toward housing and debt, many advisers say you shouldn’t go above the 36 percent figure.
4. You can save at least three months of mortgage payments to keep stored up in case you lose your job or have a medical emergency. This figure really varies by how much a homeowner needs, but most financial advisers recommend homeowners have at least three months saved to cover expenses.
5. You have a credit score of at least 580 (but ideally higher.) As the housing market adjusts to lots of losses and high foreclosure rates, lenders have started raising expectations for home buyers. Government and FHA loans might look for a 580 or better and banks could require 760 or better; there is a range of expectations. And getting approved with a low score is possible, but buyers will pay in high interest charges.
If you are planning to buy a home, let The Incorvaia Team make the process as easy as possible for you. Call us at 440-879-7130 today!
