Buying a home is a huge financial decision. That’s why you should take a good look at your present finances before investing in this endeavor.
What to examine
- Debt-to-income ratio Defined as the percentage of your monthly debt payments by your gross monthly income, your debt-to-income ratio is an important factor when it comes to buying a home. This is what lenders look at to check if you do qualify for a mortgage.To compute for your debt-to-income ratio, first, add all the costs of your monthly bills such as rent or house payments, student or car loans, credit card payments, and other debts. Then divide the total amount by your gross income – the salary before taxes or deductions. The percentage resulting from your computation is your debt-to-income ratio. The ideal percentage to attain is 36% because it shows a low risk of defaulting on your loans.
- Emergency fund Having an emergency fund is an indicator of being financially ready to buy a home. It’s called an “emergency” fund because it’s only used for unexpected financial emergencies. When such an emergency happens, you won’t need to touch the funds you use for day-to-day needs, bills, and other usual expenses.
- Credit score needed to buy a house Your credit score is an important factor in the home buying process, as well. It is one of the things lenders look at when reviewing your loan application.An acceptable FICO (Fair Isaac Corporation) score is at least 620. Those applying for an FHA (Federal Housing Administration) loan must have a minimum credit score of 500 to 580.
Costs to prepare for
Here are the costs to expect on top of a home’s price tag:
- Down payment This upfront payment is typically 20% of the home’s asking price. Down payments can also be as low as 3.5% with help from a Federal Housing Administration (FHA) loan. Take note, though, that the lower the down payment, the higher the monthly payments.
- Home inspection Make sure not to skip the home inspection as you and the seller wind down on your negotiations. This part of the home buying process tells you about the home’s condition and potential problems that might occur in the near-term. Home inspections typically cost around $300 to $450, depending on the size of the home and its location.
- Closing costs To complete a real estate transaction, buyers must allot a certain amount to pay for attorney fees, credit report fees, appraisal fees, escrow deposits, and underwriting fees. A buyer can also ask the seller to shoulder some of the closing costs, provided that a strong and compelling offer is made.
- Homeowners association (HOA) If you’re buying a home in a community or subdivision, it may be part of a homeowners’ association (HOA). Aside from abiding by the HOA’s rules and regulations, you’ll also have to pay a certain amount per month for HOA fees.
- Monthly utilities, upkeep, and maintenance One of the major costs of homeownership is utilities, upkeep, and maintenance expenses. It’s important to make the necessary repairs on the home’s foundation, roof, pipes, and heating and cooling systems not just to have peace of mind but also to keep your home’s value up.
- Miscellaneous Aside from the one-time and ongoing costs mentioned above, you also need to prepare for other homebuying expenses such as home insurance, property taxes, and moving fees.
Ready to check out houses for sale in Merced County, CA? Consult with Soldavi Realty today to learn more about the home buying process and what it entails. Call 209.975.7653 or send us an email at info(at)soldavi(dotted)com