Is it time to buy a house?
Lots of thought should go into buying a home. Afterall, it’s most likely the largest investment of your life. With that being said, you want to make sure that you are ready to buy a home. This article examines the financial points you should consider before buying a home. If it’s time for you to buy a house, we’re here to help guide you towards it.
Save for the Down Payment
Many people believe that a meager down payment of five percent is enough. Oftentimes, they are disappointed later after meeting with a lender. Most lenders want you to make a 20 percent down payment if you can because the monthly payments will be more reasonable and easier to meet than loans with smaller down payments. In other words, in a lender’s mind, the smaller the down payment, the higher the risk.
Traditional lenders require a down payment. Some will accept down payment grant programs like the VA loan or USDA loan.
If you do put “down” a down payment that is less than 20 percent, be prepared to pay PMI (private mortgage insurance). This makes your monthly payment far higher, so this is something to think about when saving for a down payment.
Down Payment Grants
You may be wondering what a down payment assistance program or grant is. It’s exactly what the name says. These grants assist homeowners in buying a home with a lower down payment. Military service members and veterans can apply for VA loans which offer 100 percent financing without a down payment. To be eligible for these, you’ll need a credit score of at least 600. Read more about VA loans here.
North Carolina and even areas around Raleigh have agricultural history and land. This makes some areas eligible for USDA loans which offer you 100 percent financing without a down payment. Check with a real estate agent or property management company like Oak City Properties to see if the home you want to buy is located in a designated rural area. Researching these options could save you thousands.
Credit Scores Matter
If you do have a low credit score, you may want to look into an FHA (Federal Housing Administration) loan. These FHA loans require a credit score of at least 500 while most lenders require a far higher credit score.
Debt-to-Income Ratio
DTI compares your monthly debt with your monthly salary. The DTI number will help you decide how comfortable you will be with the new mortgage payment added to your normal monthly expenses. So, it’s not just a tool that the banks use to determine if and how much to loan you; it’s also a tool to help you to decide if you are truly ready to buy a house.
The lower your DTI number, the better. A good DTI number means you’re less of a risk to a lender. Lenders want to see a DTI of 43% or lower. To calculate your DTI, try using an online DTI calculator.
Need Help?
At Oak City Properties, we have been helping those in the Raleigh area purchase and sell homes for years! Whether you are a family trying to buy your dream home or a landlord wanting to downsize your rental portfolio, our full-service property management company is here to help.
If you are interested in learning more about our services or speak to our listing agents, give us a call at 919-232-9222 or send us a message.
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