Am I Ready To Buy a Home?
The following four questions are among the most important when determining if you should consider a home purchase.
- Do you have a steady job history?
If you have been working consistently for at least the last two years, a lender will consider this to be steady employment. This does not mean that to be approved for a mortgage loan, you need to have held the same job for the last two years. In fact, job moves are looked on favorably if the result has been equal or more pay. However, if you have been working continuously for less than two years, this doesn't necessarily mean you won't be approved for a mortgage loan. The important thing is to be able to reasonably explain any gaps in employment. For example, if you were just discharged from the military, recently finished school, work seasonally with work gaps between seasons, were temporarily laid off, or had an illness that prevented you from working, you may still be able to qualify for a mortgage loan.
Answer: No Way!
- Do you have an established and favorable credit profile?
Before lending you money, lenders want to see a track record of debts owed and duly repaid. Your lender will order a credit report to verify your debts, the amount of your monthly payments, and how many months or years you have left to pay off your debts. Credit bureaus keep records of consumer debt and how regularly these debts are repaid. Credit bureaus compile these reports by obtaining information from a wide range of sources--credit card companies, banks that have given you car loans, department stores and gasoline companies that provide credit cards. If you have never had any credit cards and have never borrowed money from a financial institution, you can still establish a credit history by documenting your monthly rent payments to current or previous landlords and your monthly payments to utility companies for electricity, gas, water, and telephone services. A mortgage lender can probably help you put this information together. You can find out what information is in your credit file by contacting a credit bureau. They usually are listed in the yellow pages of your phone book under "Credit Reporting Agencies" and will provide you with a copy of your report for free or for a nominal fee. The major companies are Experian (formerly TRW., Inc.), CBI Equifax, Inc., and Trans Union . Contact any of them for your credit report. See if any information is missing or inaccurate, so you can take steps to have the report corrected if necessary.
Answer: Yes I do!
Answer: No I don't!
- Have you saved the money for a down payment and closing costs?
Nearly all home buyers require a mortgage loan from a financial institution. However, few loans are for the full purchase price of a house. Instead, a lender will insist you contribute some portion of your own funds (the down payment) as part of the deal. Today, buyers can pay as little as 5 percent down. (In fact, some programs such as the Fannie 97® mortgage, require as little as 3 percent down). There are also a number of government-sponsored loan programs, including Federal Housing Administration (FHA), Veterans Administration (VA), and Rural Housing Service (RHS) loans, that require little or no down payment for qualified borrowers. Typically, however, most lenders require some form of down payment. For a $100,000 home, a 5 percent down payment requirement would be $5,000. You also will need to pay a number of additional costs, called closing costs, that cover the legal transference of a property to your name and other costs associated with your taking out a mortgage. Closing costs generally range from 3 percent to 6 percent of the sales price of the home. So, if you were to buy a $100,000 house with a 5 percent ($5,000) down payment, you could expect to pay between $3,000 and $6,000 in closing costs. Think about how much houses cost in your area and the type of mortgage down payment your loan will require. Then calculate the funds you have available to you for a down payment and closing costs.
Answer: Yes I've saved up!
Answer: No, haven't saved enough yet!
- Can you afford monthly mortgage payments for the house you want?
Generally, the amount of your monthly mortgage payment is limited to 28 percent of your gross monthly income. The amount of your total monthly debt is limited to 36 percent of your gross monthly income. Staying within these lender guidelines will give you a certain range of monthly mortgage payments you can afford. The amount of these payments will depend on current interest rates.
Answer: Yes, I can!
Answer: No, I can't!