There are a few pieces
to this puzzle of home ownership. To determine if you are ready
to buy here are a few questions to ask.
1.
Do you have a continuing and reliable source of income prior
to applying for the loan?
Obviously if you have
a steady 36+ hour a week job, you have reliable income. But
you don’t have to have a job that pays you every week
or every two weeks. There are many ways that people make their
living – the building trades, they may own their own
business or work part-time for two or more companies. The key
here is continuing and reliable. Social security payments will
continue and the federal government is a reliable source, you
may not make enough on social security alone to purchase, but
it is definitely a continuing and reliable source of income.
Likewise, a sporadic but ongoing occupation is acceptable.
Underwriters usually average the income over a two-year period
of time. Working for yourself is also fine, just remember in
order to claim income for a home purchase you must be paying
your share of tax to the government. If you make $45,000 but
only tell Uncle Sam about $30,000 of it, the loan officer can
only use $30,000 to qualify you for the loan.
2.
What is ‘Household Income’?
Many programs allow
families and individuals living together to pool their income
in order to purchase a home. For example: a family of five
with two incomes and another family member collecting social
security might be a great prospect for homeownership.
3.
Have you established good credit?
We’re not talking
here about your credit performance since the beginning of
time. Many loan programs look for what is called a “12-month” snapshot
of your most recent payment history. Have you paid your bills
on time for the last year and have you paid these bills “as
agreed”. In other words, did you at least make the
minimum payment on time? Other things that may affect your
qualifying including: having too many cards or having one
or more cards charged to their maximum allowable limits.
4.
Have you declared bankruptcy?
If you have declared
bankruptcy within the last two years you are probably not
ready for homeownership. If your bankruptcy is over 5 years
old, you should not worry about it. Between 2 – 5 years
old, a bankruptcy may or may not affect your qualification
based on the circumstances. This is something worth talking
to an experienced loan officer about. Of course, after a
bankruptcy, a record of good payments is more important than
ever.
5.
Are you ready for the additional expense of homeownership?
If you have steady
income and manageable debt, ask yourself if you are ready
to be your own landlord. Not only may your monthly payment
increase (mortgages are usually more expensive than rent)
but now you are your own landlord. If something breaks, you
are responsible for fixing it. Short-term, homeownership
is more expensive than renting but over the long-term owning
always pays off.
6.
Do you have some money stashed away?
There are some up-front
costs associated with purchasing a home. Many programs for
first-time buyers’ have built-in assistance for these
costs and fees but you should count on paying at least 1%
of the sales price from your own saved funds. Plus, even
if you purchase a brand new home, there will be some expenses
associated with your move and taking care of the little things
that will make the home more comfortable for you and your
family.
7.
How much can you afford?
Instead of trying
to figure out how much house you can afford, work at finding
a payment that you feel comfortable with. A good loan officer
I know says, “Fall in love with the payment before
you fall in love with the home.” To get a quick idea
of what you can afford to spend, multiply your annual gross
income (before taxes) by 5. For example, if your annual household
income is $50,000, you might be able to qualify for a $250,000
home. This is just a rough estimate - the actual number will
vary based on factors such as your debt and credit history.
Mortgage lenders typically use a housing expense and debt-to-income
ratio to more accurately determine how much you can afford
to spend on your mortgage. But you know best. Sit down with
your family, look at the total of your combined take home
pay and your bills including estimates for food and fun.
Then determine a monthly payment that you feel comfortable
with. If that number is at least $1,200 – you may be
ready to take the next step.
Looking
for a Home? Contact Mary Willett: Mary@SacramentoHomes.net
• Cell Phone/V.M.: (916) 715-0122 Need a Loan? Contact Bob Willett: Bob@SacramentoHomes.net
• Cell Phone/V.M.: (916) 485-7939
