4 Financial Questions to Consider Before Buying a Home
Tuesday, May 14, 2019, 6:00 AM | Leave Comment
Deciding to buy a home is a huge decision. It will, for one, involve the largest loan you are likely to take out during your entire life.
Buying a home is a major long term investment. For that reason, the process can be very intimidating to some people. They may worry they won’t have the finances to afford it.
However, if you educate yourself about the home buying process and the finances involved, you have no reason to be nervous.
With that in mind, below are four financial questions you should consider before you enter into the home buying process.
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Do You Have Enough to Make the Down Payment?
Like most loans, obtaining a mortgage requires making a down payment. Obtaining a fixed rate mortgage with a term of 30 years will require making a down payment of five percent of the value of the home. Saving up for the down payment can be a big deal in and of itself. Make sure you have the money before you start seriously home shopping.
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Is Your Credit Healthy?
Another financial question you should ask is whether or not you have good credit. If your credit is poor enough, you may not be able to get a mortgage at all. If you are approved for a mortgage, it may only be one with a very high interest rate. A high interest rate means paying much more for your home over the term of the loan. If you need to, you may need to work on improving your credit before you buy a home.
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Do You Know What Your Debt-to-Income Ratio Is?
Something else you should learn is your debt-to-income ratio. This figure is used by banks to determine who will be approved for a mortgage. In general, it is suggested that you have a debt-to-income ratio of less than 44 percent to buy a home. If your ratio is higher than this, you may want to consider postponing your investing in a home.
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Have You Considered All Your Options for Obtaining a Home?
While buying a single family home may be the best option for you, other choices may be better depending on your finances. For example, have you investigated condominiums or different rental properties? If you are planning on moving in the future, renting may be a better choice with your current circumstances.
Overall, don’t be afraid of entering the home buying process. However, you must first be educated both on the process as well as your own finances. Perform research on home buying and different properties through online realtors like RE/MAX Properties, Ltd. If you understand your own finances and how to get a loan, you should be able to avoid any surprises in the process.
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