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There are many great reasons for owning your own home including having your own place, the potential for equity appreciation, and being able to deduct the mortgage interest that may then make the cost of owning a home less then renting.
Buying a home is the largest purchase most people will ever make. Are you ready for home ownership: Examine your current situation and determination if (1) You have a steady, reliable source of income and a two year employment history; (2) You have a satisfactory credit history; (3) You are able to manage debt and can take on the monthly costs of home ownership even with future expenses such as a growing family and/or college; and (4) You have money saved for a down payment, closing costs, and reserves after closing or have access to these funds.
What to do if you want to buy a home: Track and record all of your monthly expenses by preparing a budget and accounting for all income and all monthly expenses for 3 months. Your budget worksheet should contain 4 columns: Monthly Budget Allocated, Monthly Actual, Difference, and Notes. Be sure to include every single item, keep a log of where every dollar goes, and include adding to your savings as a regular monthly expense. Put away the difference of the future mortgage payment and your current housing payment for a few months to determine your mortgage paying comfort level.
Obtain a tri-merge credit report that has not just your history, but also your credit scores. The credit reporting agencies are Transunion – www.transunion.com or 1-800-888-4213, Equifax – www.equifax.com or 1-800-685-1111, and Experian – www.experian.com or 1-888-397-3742. Review your tri-merge report carefully and correct any mistakes right away. If there are any collection accounts or liens they will need to be satisfied. Think of your credit as your asset, protect it, and improve it.
Along with an evaluation of your credit, stable income, assets, and demonstrated ability to manage debt, a lender typically looks at two ratios to determine how much you can afford to spend on your mortgage. The first is the housing expense ratio which is calculated by multiplying your total gross income by 28% and dividing the result by 12. This is the maximum monthly payment lenders typically allow, including principal, interest, taxes, insurance, and association dues. The second is your total debt ratio which is calculated by taking your total monthly obligations including your housing payment and dividing this by your total monthly gross income. Lenders generally want to see this ratio not exceeding 38%. If a borrower has strong compensating factors, sometimes there can be an allowance for an amount slightly higher than these ratios.
If what you can afford is less than the average single family home, look at townhouses, condos, affordable projects, and special organizations addressing affordable housing.
There are many skilled and knowledgeable loan officers that can assist you in many ways on becoming mortgage prepared. Work with one you trust that helps you to sort out your options and provides you with full disclosure to make an educated decision.
Jaimie Brown is a Senior Loan Consultant and Maui Team Trainer for Mortgage Express located at 1111 Bishop St., Ste. 511, Honolulu, HI 96813. Mortgage
Express provides free workshops on Maui for mortgage preparedness,
establishing and/or improving credit and providing money saving tips. She
can be reached at 808-242-6010 or via email: Jaimie@choicehawaii.com. |
