Tips for Choosing Your First Home
Moving into your own place can be exciting and a little frightening at the same time. Sullivan Bank suggests considering the following questions when choosing your own home.
1. How much money do you have saved up?
Start with an evaluation of your financial health. Figure out how much money you have for a down payment or deposit on a rental. Down payments are typically 5 to 20 percent of the price of the home. But be sure to keep enough in savings for an emergency fund. It’s a good idea to have three to six months of living expenses to cover unexpected costs.
2. How much debt do you have?
Consider all of your current and expected financial obligations like your car payment and insurance, credit card debt and student loans. Make sure you will be able to make all the payments in addition to the cost of your new home. Aim to keep total mortgage payments plus utilities to less than 25 to 30 percent of your gross monthly income. Recent regulatory changes limit debt to income (DTI) ratio on most loans to 43 percent.
3. What is your credit score?
A high credit score indicates strong creditworthiness. Homebuyers can expect to have their credit history examined. A low credit score can keep you from qualifying for a low interest rate on your mortgage loan. If your credit score is low, you may want to delay moving into a new home and take steps to raise your score.
4. Have you factored in all the costs? Create a hypothetical budget for your new home.
Find the average cost of utilities in your area, factor in gas, electricity, water and cable. Consider the cost of yard maintenance and other basic maintenance costs. When planning to buy a home, factor in real estate taxes, mortgage insurance and possibly a home owner association fee.