Tips to Buy a Home

A home is the largest purchase that most people ever make. Many decisions have to be made during the home-buying process in unfamiliar areas (e.g., mortgages and home sale contracts). Below are five tips for homebuyers:

• Shop Around for Financing- Take the time to shop for the best terms on a mortgage. It could save tens of thousands of dollars over time. Follow the “Rule of Three” and compare at least three different lenders as well as providers of every required service (e.g., realtor, mortgage lender, home inspector, and attorney).

 

• Know Your Borrowing Limits- Consider the guideline that homeowners should spend no more than 2 to 2.5 times their annual income for a home. Most lenders also use some variation of the “28/36 Rule.” This means that PITI (principal, interest, taxes, and insurance) cannot exceed 28% of gross monthly income and PITI, plus outstanding consumer debt (e.g., credit card payments), cannot exceed 36% of gross income.

Example: A couple earning $60,000 annually, or $5,000 a month, would qualify for a mortgage with a $1,400 monthly PITI payment ($5,000 x .28) if they had no other debt and a $1,200 monthly payment if they had $600 of monthly consumer debt payments (5,000 x .36 = $1,800 - $600 = $1,200).

• Get Help- Inquire about loan programs for first time buyers and no- or low- down payment VA mortgages that are available to active duty service members and military veterans.

 

• Be Patient- It may take a year or more to accumulate enough cash to qualify for a mortgage on a starter home. Do not expect to purchase a large house with upscale features the first time around. You’ll also need to save for closing costs, which can amount to several thousand dollars.

 

• Get Pre-Approved- Before shopping for a house, get pre-approved. This means that a lender has verified your income, checked your credit, and agreed in writing to provide a mortgage up to a certain amount.