Moving into your own place can be exciting and frightening at the same time. Consider the following five questions when choosing your own home:
1) How much money do you have saved up? Start with an evaluation of your financial health. Figure out how much money you have for a down payment. Down payments are typically 5 to 20 percent of the price of the home. But be sure to keep enough in savings for an emergency fund. It’s a good idea to have three to six months of living expenses to cover unexpected costs.
2) How much debt do you have? Consider your current and expected financial obligations—like your car payment and insurance, credit card debt and student loans. Ensure you will be able to make all the payments in addition to the cost of your new home. Aim to keep total mortgage payments plus utilities to less than 25 to 30 percent of your gross monthly income. Recent regulatory changes limit debt-to-income (DTI) ratio on most loans to 43 percent.
3) What is your credit score? A high credit score indicates strong creditworthiness. Both renters and homebuyers can expect to have their credit history examined. A low credit score can keep you from qualifying for a low interest rate on your mortgage loan. If your credit score is low, you may want to delay moving into a new home and take steps to raise your score—click here for seven tips for improving your credit score.
4) Have you factored in all the costs? Create a hypothetical budget for your new home. Find the average cost of utilities in your area, factor in gas, electricity, water and cable. Find out if you will have to pay for parking or trash pickup. Consider the cost of yard maintenance and other basic maintenance costs like replacing the air filter every three months. Factor in real estate taxes, mortgage insurance and possibly a home owner association fee.
5) How long will you stay? Generally, the longer you plan to live someplace, the more it makes sense to buy. Over time, you can build equity in your home. Carefully consider your current life and work situation and think about how long you want to stay in your new home.
Partner with Busey for the resources you need to achieve your dream of homeownership. Our in-house mortgage expertise and participation in a wide range of programs mean your home loan is tailored to your individual needs. Apply online today in 20 minutes or less at buseymortgage.com.