There are many benefits associated with buying a home. A home can provide us with safety, shelter and a solid investment for life. Purchasing your first home can be exciting, but it can also be a major reality check if you are not prepared.
Home ownership may not be the best decision for you if you are not financially stable to make such a huge commitment. In order to find out if home ownership is right for you, you must consider all the factors involved such as the housing ratio, debt obligation and down payment percentage, just to name a few.
One of the most important things to keep in mind when buying a home is that there are many hidden costs that you will need to consider aside from your monthly mortgage payment. The housing ratio is the amount of money you will need to set aside for all your housing expenses. Some of these expenses may include utilities, maintenance and housing insurance. You will need to come up with a reasonable budget plan to cover these expenses before you make your purchase.
Experts recommend your housing ratio should be 30 percent of your gross monthly income. If you take your gross income and multiply it by .30, then divide the sum by 12, this will tell you how much home you can afford each month. The amount will have to include your mortgage payment, insurance costs and all other monthly home fees.
Total Debt Obligation Ratio
This is the percentage of your income that should cover your housing expenses as well as your other bills, which can include car loans, student loans, and credit card payments. If you have already paid down a large amount of your debt, or you do not have a lot of debt in the first place, you will have a better chance of obtaining the home that you prefer. Many financial experts will suggest that this amount does not exceed more than 36 percent of your total gross monthly income.
Down Payment Percentage
The down payment can be one of the biggest challenges for first-time home buyers. In order to buy a home, a person generally needs to have a large amount of money saved up to pay down on their mortgage. Years ago the average down payment was anywhere from five to ten percent of the total cost. Today that number can be at least 20 percent or more depending upon the status of the real estate market at the time.
Other factors that home buyers should consider include their currently lifestyle, credit history and score, fees and closing costs. It is always best to buy what you can afford comfortably today and not what you plan on being able to afford later down the road. Your credit history will pay a major role in whether or not you will qualify for a mortgage as well as determine what your mortgage rate will be. If your credit is less than perfect, you may want to work on getting it in better shape before you buy. Two other factors that are usually left out are fees and closing costs. These are the expenses that you will have to pay before you close the sale. These can include everything from a home inspection to lawyer fees.
Plan for the Future
There are so many things to consider before you jump into buying a home. When you start to browse the listings for the current homes for sale within the Austin area, you will need to ask yourself how much home you can afford. It is best to always be realistic in your home-buying endeavors and make a solid plan for the future. While you may be able to afford a large, lavish home at the moment, you must consider if you are still able to afford that same home five, ten or fifteen years from now. Is your current occupation stable, or will it require you to move to a new location years from now? Are you planning on starting a family? And will that have an impact on your current home-buying choices? These are all factors that will need to be considered when you are planning to purchase your first home.
Buying a home requires a lot of planning and responsible thinking. Even seasoned buyers must plan ahead in order to make sure that they can afford the home of their choosing for the long haul. It is best to figure up your total monthly costs in advance so that you will have a better understanding of exactly how much home you can afford. Look for homes that are within your current budget plan and always keep your future goals in mind. If you need more information on how to plan for the home-buying process, you can contact your financial adviser or a local real estate agency for more details on how to successfully make a responsible home purchase.