Are you ready for a house? Easy lending laws of years gone by were ready to lend money to anyone, no matter what their credit score or employment status. Most people are still under the assumption that they can get a house loan for 100% financing. Veterans can still get a home for 100%. New home buyers can sometimes still get 100% financing through FHA loans, but this is a little tricky for several reasons.
An FHA loan will require a good credit score of 700 or above. Many lenders will tell you 620 is acceptable, but the loan will move slow and the rates will be higher. With this type of loan, your potential house must meet certain guidelines that basically make it good resell material if the bank ends up with it. The bank does not want a fixer-upper no matter how good the price is. People with FHA loans often default, which makes you understand the stipulations. Some home sellers will balk when told the roof or furnace needs to be replaced before the loan will go through.
Another little known fact is the FHA loan has almost double the closing costs of a traditional loan. Remember the down payment you didn’t have. You’ll need the equivalent of it to pay your closing costs. You can ask the buyer to pay some closing costs, but it doesn’t necessarily mean he or she will. The reason the cost are so high is because of the mortgage insurance.
Maybe you have a decent rating and want to go with a traditional loan. Perhaps you can easily scrape together 5% or more of the asking price. Good deal, if not, you might ask some relatives for help Be prepared to show paperwork that Aunt Hilda gifted you with 10,000 as opposed to a local loan shark. It feels like the bank is in your business, and they are. They just want to be sure you’re a good loan bet. Many people aren’t.
Bad credit rating, foreclosure, even debt reduction plans can be held against you when applying for a home loan. Not paying your school loan can cause you not to get a home loan too. If you’ve not been at a job for a year, then you’re also not a good bet. If none of these apply to you, then you just might qualify, if your debt to income ratio is in the positive. This is your bills compared to the money you make.
You should not spend more than 40% on current housing, associated costs, and utilities.If you make $4000 a month, then your total housing costs should no more than $1600. Your other monthly debts such as credit cards, school loans, and car payment should not exceed 15%, which would be $600. You still have taxes and insurance, plus food, and gas, and basically everything else to still pay for with the remaining money. If your debt to income ratio is higher than this, then you really need to get it down before even thinking about a house. Besides the down payment, there are a bevy of associated fees.
First you have to come up with earnest money usually $1000 in the
Midwest. This assures the realtor you’re interested. If you can’t come up with this, then renting might be your best bet. Have your home inspected to find out if it has termites, radon gas, or just bad wiring. Pay the 200-400 dollars now to avoid costly repairs later. Major underlying issues can cancel out the sale. Do you really want to buy a house with corroded pipes? Inspection is the only way to find out. Ask your realtor for a reputable inspector. It is to her advantage that you’re happy. Another good idea, although completely optional, is the home warranty, which runs about $350. It covers pre-existing conditions that your homeowner’s insurance will not cover.
So far, you’ve put down earnest money, paid for the inspection, put back money for a down payment, and closing costs. Are you moving into a neighborhood with home association fees, most do these days. They’ll expect those to be paid up front, not when you get moved in. It is usually a pro-rated amount from the closing date to the end of the year.
Most houses do not come with all the appliances. If you don’t have a fridge, stove, washer, or dryer, plan on buying one. Sometimes the homes need a little paint and some remodeling before move in ready. Other times a larger home might necessitate additional furniture, although you do not have to get it all at once. When you’re calculating your monthly mortgage payment, make sure to add in taxes, and insurance.
Then there are the movers. If you’re very lucky and don’t have far to move, you might be able to get a rental truck and round up some friends. If that’s not a possibility, then plan on spending $1000 -$4000 depending on how much stuff you have and if you’re moving out of state. All of the sudden, the whim of buying a house seems more like a financial mountain. There are benefits to buying a house, of course.
You can decorate as you like, plant flowers, keep a large dog, even have a vegetable garden if you so desire. With shorter loans such as 10, 15, and 20 years loans, you can build up equity quicker, and pay less interest. You still have the mortgage exemption too. Take time to consider everything to weight your options before making an impulsive move.