If you’re interested in owning your own home, it’s time to go for it. Home prices have started increasing faster than inflation, and interest rates are at historic lows—but probably not for long.
Even if you do not have a down payment, you might be able to qualify for a home loan. Both the United States Department of Agriculture (USDA) and Federal Housing Authority (FHA) provide home loans with little or no down payment required.
To figure out whether you qualify for one of these loans, gather all your financial information: proof of income, employment history (length on the job and in the industry), credit information, bank statements to demonstrate any available cash for a down payment, closing costs, reserves, and a potential co-signer or guarantor for a loan. Then make an appointment with a mortgage broker and be completely honest about your financial situation.
Under the right circumstances, you may be able to get a loan with zero out of pocket. This happens when you combine a low-down-payment loan with credits from the seller for non-recurring closing costs—cases where the purchase price is high enough to offer credit back toward the buyer and that money is used as the cash requirement at closing. Mortgage insurance can also help reduce the amount of a down payment by providing security that the monthly mortgage payment will be made.
If you’re serious about buying a home, and your meeting with the mortgage broker indicates you can qualify for a loan, you should immediately get pre-approved. This tells potential sellers that your offer is the one to accept, because you’ve already done the legwork to make sure you’re qualified. Sometimes people confuse having a good credit score with getting pre-approved for a home loan. While a good credit score helps, many other factors are involved in a lender’s decision regarding a loan:
- Your total income
- Length of time on the job and in the industry
- Debt-to-income ratio
- A more detailed credit review than just a FICO credit rating.
Once a loan broker reviews all this material, they will consider providing a pre-qualification or pre-approval letter, depending on the source of the information. Your heartfelt promise isn’t as secure as documents proving your credit worthiness.
After you’ve figured out how much house you can afford, you must figure out how much house you want to afford. Do you want to have a little money left over at the end of each month, or are you investing all you can in your new home? Is there growth potential in your job? Does your spouse plan to go to work and increase your household income next year? Or are you a young couple planning to start a family and have one of you quit your job to stay home with the baby? Be honest with yourself about what kind of payment will allow you to live the way you want to.
Remember, owning your own home means a mortgage payment, tax and insurance payments, and maintenance expenses. On the bright side, it also means building equity in your own property instead of paying rent to someone else so they can build equity in theirs.
To find the right house, choose a real estate agent you like and trust, and tell your agent all the pertinent facts: how much you want to spend, what your new home must have and what you’d like it to have. Share your preferences about location, property size, home size, number of bedroom and bathrooms, and any special considerations. This allows your agent to help you find the home you’ve dreamt of as quickly as possible.
If you have questions about real estate or property management, feel free to contact me at rselzer@selzerrealty.com or visit our website at www.realtyworldselzer.com. If I use your suggestion in a column, I’ll send you’re a $5.00 gift card to Schat’s Bakery. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 35 years.