One of the more exciting times in a person’s life is when they finally come to the realization that they can start the process of looking for their first home. That’s because it means that not only are the days of living in a cramped apartment or a parent’s home coming to a close, but that a new chapter in life is about to begin.
As thrilling as all this can be, the fact remains that the process of purchasing a home can prove to be rather mysterious and slightly intimidating for first-timers. In light of this reality, today’s post, the first in a series, will provide some basic background information on the home-buying process.
How much house can you afford?
While it can be tempting to start looking for houses on your local internet real estate listings as soon as possible, it’s imperative for people to first determine how much house they can actually afford. To that end, prospective buyers have a variety of tools at their disposal from accessing online mortgage calculators to securing a mortgage pre-approval.
In general, experts indicate that there are two points to keep in mind when making this determination 1) monthly mortgage payments should not surpass 36 percent of gross monthly income and 2) homes that are priced roughly two-and-a-half times gross annual salary are typically the most viable long-term options.
Do you have the necessary cash?
Once you’ve determined the price range in which you will be searching, experts indicate that the next inquiry is whether you have the necessary cash at your disposal to cover a down payment.
While lenders prefer a down payment of around 20 percent, there are mortgages available via various public agencies and private entities, and their associated banks that offer mortgages with low down payments. However, these typically mandate the purchase of private mortgage insurance, which will see the amount of your monthly mortgage payments creep upward.
In addition to cash for the down payment, experts urge people to consider taking the necessary steps to ensure that they have sufficient cash to cover closing costs, such as the appraisal fee, loan fees, inspection fees and title search.
We’ll continue this discussion in future posts.
If you are getting close to making a decision on a home, consider speaking with an experienced legal professional who can guide you through the closing process, protecting your rights and helping ensure that everything proceeds as planned.