One of the biggest reasons holding potential home buyers back is education and cost. EducateHomeBuyers.org holds “free” virtual classes to help folks understand the process and takes the anxiety out of the purchasing a home. There are many individuals and families misinformed about the cost, the process, credit, down payment, money needed upfront, and many more. You will get all of that answered in one of our classes.
We do recommend a little self-analysis on whether you are financially ready to purchase a home. Buying a home needs to be done on your schedule, not anyone else. You may be surprised that you are ready right now.
Understanding the financial realities of purchase a home can come with a lot of uncertainty and questions. Get started by asking yourself these 7 tough questions below:
- Do you have a stable income?
Lenders require a two-year work history on your loan application. They are looking for income stream stability. Now, COVID has created issues, but most of the time this can be documented and explained which will not impact your income. Education classifies as full-time employment, so if you have this make sure you include in your work history.
It is important that you feel comfortable that your income is secure, and you have a history of stable employment.
If you’re one of the 57 million Americans who are self-employed and don’t have a steady paycheck, getting a mortgage can be extra challenging. If you have been self-employed for less than 5 years lenders are going to require 2 years of personal and business tax returns.
- Buying a home is a long-term investment – Are you ready?
This is a big question to ask yourself. Your first home is probably not going to be your last home, but do see yourself living in the area 5or more years? Are you expecting to grow your family? Is your work situation going to remain in the area?
Many home buyers overlook the costs to sell your home. They can range from 7 – 10% so that alone will keep you in your home until the equity can grow to cover the costs to sell.
- Can you manage your debt?
Your house payment, utilities, maintenance, and repairs are typically higher than renting. Do you have the cash-flow to cover these higher costs?
Is your credit score high enough? Paying your creditors on time and keeping your credit card balances at <30% of the high credit limit will lead you to a higher credit score.
There are many services that can help you track your credit scores. Experian, Equifax, TransUnion, Credit Karma, Mint, Credit Sesame, your bank, you credit cards and many others are great sources to help you do this.
It may be very difficult to qualify for a mortgage without good credit scores, so know your numbers!
- Do you have a reserve/emergency fund?
Having an emergency/reserve fund can tide you over if you are out of work or have an unexpected expense. Most financial experts recommend having enough cash for three to six months of living expenses in a savings account.
If you do not have this in savings it is time to do a budget and get all your expenditures on paper. Look at what expenses you can reduce or eliminate. Can you shop for better rates on cell phone plan, auto insurance, make coffee and make your lunch at home? You will be surprised how much you can save! Use that savings for your reserve fund and paying down your debt.
- Do you have enough cash for a down payment?
Many potential home buyers still think they need to save 20% to purchase a home. In reality, you may qualify to buy a home with as little as 3% down. Join one of our classes to see how much money you “do” need and if you qualify for your state’s down payment assistance programs. You can see our class schedule by clicking here.
Putting less money down may allow you to keep more funds in your pocket to do improvements to the home, buy appliances or just avoid charging expenses on your credit cards.
- What do you qualify for?
This should be your starting point after the first 5 questions above. Knowing the numbers on your maximum purchasing power, the monthly payment, and the costs will give you a clear idea on your next steps.
We discuss prequalification numbers in our classes, and you can also contact Curt Tiedeman (License NMLS 35554) at Caliber Home Loans to help you with this step. He will not need to pull your credit to do a prequalification, so it makes this step much easier. Here is his contact information: Cell: 206.650.4202 Email: Curt.Tiedeman@CaliberHomeLoans.com Website: www.HomeLoansByCurt.com
- Buying a home requires sacrifice, are you ready?
You need to feel comfortable making the mortgage payment each month and if it fits into your lifestyle.
You must ask hard questions like:
- Can you cut back on eating out?
- Will the financial the cost of a mortgage impact your vacations or other things that you like to do?
- Will your income increase annually to make the payments more affordable?
- Does buying a home impact any future at work, starting a new business or family? on vacation every year?
If buying a home means cutting out things that you are unwilling or uncomfortable giving up, it may be best to wait. Only you can tell, and you must do it on your schedule.
Equal Housing Lender.