When considering the purchase of a home many factors come into play. Budget, Goals, Needs and Wants are all key players when deciding your next step.
Here are a few things to remember and consider:
Determine your Budget. Lenders will allow up to 30% of your monthly income to go to all debt. That includes your car loan, student loans, credit card debt and the mortgage.
When talking about your monthly mortgage payment – we uses the term PITI:
PRINCIPLE: How much of your monthly payment that goes towards your loan principle
INTEREST: How much of your monthly payment goes towards your interest rate
TAXES: Property Tax is 1.25% of your purchase price (and rises yearly), we divided it by 12 and add it to the monthly cost of homeownership. (It is actually paid in two installments, Feb & Nov)
INSURANCE: A home or condo needs homeowners insurance, we estimate the yearly premium and add the monthly cost to the total.
This gives the borrower and accurate picture of the monthly cost of the home, even though many of the payments are annual or semi-annual.
DOWN PAYMENT: These days a borrower needs a minimum of 3.5% for their down payment to qualify for an FHA loan. FHA loans do have strings attached and Private Mortgage Insurance is an expensive cost of putting less than 20% down. It’s best to sit down with a lender to discuss your loan options. We have several trusted lenders you can work with.
CLOSING COSTS: Many borrowers expect the need for a down payment but do not understand what “closing costs” are. Closing Costs are the fees associated with purchasing a home. Closing costs run about 3-4% of your purchase price and must be liquid and available. Closing Cost Fee’s included:
Lender Fees: Costs for your loan, including but not limited to, appraisal fees, credit report fee, points (1% of loan amount to pay down your interest rate up front), doc prep, underwriting, administration fees, and wire transfers to name a few.
Title & Escrow Fees: When purchasing property you will also purchase two Title Insurance Policies to ensure the property is yours and no one can stake a claim to your property. The Title & Escrow companies also charges Escrow Fees for handing the monies, loan docs, and recording the property with the county.
Inspections Fees: There are also fees that are paid outside of escrow, such as Inspections on the property that are often given a discount if paid at time of the inspection.
Gift Funds: When a borrower is receiving monies for the home as a gift, the lender will require a paper trail, including a Gift Letter signed by the person giving the gift expressing the money is not a loan and will not expect the money to be paid back. Also, it is best to get that Gift Money upfront to “season” the money in the borrowers bank account. Banks like to see 3-6 months of “seasoning”.
Got Questions – we’re here to help. Email us @ Info@TheCatonTeam.com or visit our website at http://thecatonteam.com/
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To read my personal journey through homeownership – visit http://ajourneythroughhomeownership.wordpress.com/ Enjoy!