House.com - Be Smart when Buying Your Next House
Homeownership is becoming a reality for more and more Americans. The US homeownership rate reached 67.7%, the highest rate ever. Yet many Americans don't realize that homeownership is within their grasp.
A house is a financial asset and more: it's a place to live and raise children; it's a plan for the future; it's an investment in your community. Knowledge is said to open doors. This is literally true when it comes to buying a house. To become a informed housebuyer, you need to know where and how to begin the housebuying process.
House Buying Tips1. HOW DO I KNOW IF I'M READY TO BUY A HOUSE? You can find out by asking yourself some questions: Do I have a steady source of income (usually a job)? Have I been employed on a regular basis for the last 2-3 years? Is my current income reliable? Do I have a good record of paying my bills? Do I have few outstanding long-term debts, like car payments? Do I have money saved for a down payment? Do I have the ability to pay a mortgage every month, plus additional costs? If you can answer "yes" to these questions, you are probably ready to buy your own house.
2. HOW DO I BEGIN THE PROCESS OF BUYING A HOUSE? Start by thinking about your situation. Are you ready to buy a house? How much can you afford in a monthly mortgage payment (see Question 4 for help)? How much space do you need? What areas of town do you like?
3. HOW DOES PURCHASING A HOUSE COMPARE WITH RENTING? The two don't really compare at all. The one advantage of renting is being generally free of most maintenance responsibilities. But by renting, you lose the chance to build equity, take advantage of tax benefits, and protect yourself against rent increases. Also, you may not be free to decorate without permission and may be at the mercy of the landlord for housing. Owning a house has many benefits. When you make a mortgage payment, you are building equity. And that's an investment. Owning a house also qualifies you for tax breaks that assist you in dealing with your new financial responsibilities- like insurance, real estate taxes, and upkeep- which can be substantial. But given the freedom, stability, and security of owning your own house, they are worth it.
4. HOW DOES THE LENDER DECIDE THE MAXIMUM LOAN AMOUNT THAT CAN AFFORD? The lender considers your debt-to-income ratio, which is a comparison of your gross (pre-tax) income to housing and non-housing expenses. Non-housing expenses include such long-term debts as car or student loan payments, alimony, or child support. According to the FHA,monthly mortgage payments should be no more than 29% of gross income, while the mortgage payment, combined with non-housing expenses, 4 should total no more than 41% of income. The lender also considers cash available for down payment and closing costs, credit history, etc. when determining your maximum loan amount.
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