Are You Ready to Become a Homeowner?

Posted on August 31, 2011. Filed under: Sara Halfmann, NMLS #411698 |

“It’s a great time to buy”, “rates are at all-time lows”, and “it’s a buyer’s market”.  Do these phrases sound familiar?  It seems you cannot avoid talk about the housing market.  Whether its coverage in the press, advertisements from lenders and/or realtors, or advice from family and friends they all seem to be saying the same thing:  now is the time to buy. 

 Deciding to buy a home is a big deal.  It is likely the largest purchase and biggest, long-term financial commitment you will ever make.  And yes, now is a good time to buy.  But, before you run out and make an offer on your dream home you must first determine whether or not now is really a good time for you to buy.   

 The following are five questions every prospective buyer should answer before deciding to become a homeowner:

  1. How much home can you afford?  Underwriting guidelines may vary from lender to lender; however, on average no more than 34% of your gross monthly income should be allocated toward your total monthly housing obligation.  This amount includes your monthly principle and interest mortgage payment, property taxes, home owner’s insurance, and any other applicable items such as private mortgage insurance premiums, flood insurance, and homeowners association dues.
  2. Do you have sufficient funds for closing?  There are very few loan programs out there that allow for 100% financing.  While gifts are typically allowable, you should have at least 3% to 5% of the purchase price available from your own funds for down-payment.  In addition to down-payment, be prepared to pay for loan closing costs, escrow deposit, home inspection fees, and your first year of home owner’s insurance premium at the time of or prior to closing.
  3. Do you have adequate reserves?  It is recommended you have at least six months of your total housing obligation in liquid reserves to cover any unexpected expenses such as household repairs or to supplement a temporary loss of income.
  4. What are your short and long term financial goals?  Make sure you consider all of your financial goals (i.e., retirement, college funds, vacation plans, child care, and weekly entertainment) before deciding to buy.  Spending 34% of your gross monthly income on your monthly housing payment is only recommended if you can continue to comfortably support your other financial goals.   
  5. Do you have an adequate, acceptable credit history?  Underwriting guidelines have become stricter in recent years.  A weak credit rating and/or lack of credit history can keep you from receiving a loan approval.  

Doing a little homework upfront will help you to decide whether or not you are ready to take the next step.  And remember; if you do decide to move forward, always meet with one of Denmark State Bank’s experienced lenders for a pre-qualification consultation before viewing homes and/or writing an offer to purchase.

Member FDIC | Equal Housing Lender
NMLS 411698

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