Preparing for Home Ownership
If you are considering purchasing a home, this article will show you some common misconceptions as well as give you a checklist to make sure you are ready for home ownership.
First, you need to think about your employment situation. Are you presently well settled into the career you want and the job that you will be keeping for a reasonable period of time? Today it is very hard to count completely on a company being there forever, but you need to try to transition from renter to owner with as little trauma as possible. Being able to pay for your home without denying yourself is very important to enjoyment of the home.
Mentioning debts also brings up the next item that you need to consider when purchasing a home. When was the last time you checked your credit or FICO score? You can receive one report from each of the three credit bureaus for free each year by going to annualcreditreport.com. You will be able to see your complete credit picture. While 3 complete annual credit reports are free there is a small fee if you wish to obtain your FICO score. If preparing to make a purchase your FICO score will be very important in determining what interest rate will be offered to you. The better your score, the lower your mortgage interest rate. This could save you hundreds of dollars a month and thousands over time. Check your credit reports to make sure that everything is accurate and complete. If a debt is listed that is not yours, there are dispute forms that are available at any of the three credit bureaus. Do not put down a whole lot of information. Simply, say the debt does not appear to be yours. The bureau will contact the creditor who has 30 days to either provide proof the debt is yours or it will be removed from your credit file. (Note that it may “reappear” later on, so vigilance is required).
Once you have your credit score, you can check with your realtor or bank to find out how much house you can afford. Do not buy as much house as they say you can afford, but scale back a little bit, as you do not want to be “house poor”. This happens when you have to give too much money for your mortgage and do not have enough left for daily living expenses such as utilities, car payments, insurances, etc. You want to purchase a home that allows you to provide for your family as well as make the mortgage payment.
You also need to have a down payment of 20% of the total mortgage to avoid mortgage insurance. Mortgage insurance is an additional amount of money that is added to your bank financing when you do not have the full 20% down payment. It is best to avoid this fee, if you can, because it is often pretty substantial. To find out what your down payment and your monthly payment will be based on the interest rate you qualify for, go to http://www.bankrate.com and use the calculators. Your realtor or bank can give you the interest rate you qualify for based on your credit scores and you can calculate the house payment based on 30 or 15 years and how much the payment will be monthly. You can also see how much the payment would be if you cleaned up your credit report a little and received higher scores.
If you find there is a large difference in the money you have saved for a down payment and the 20% requirement of the type of home you wish to purchase, the best advice is to try to wait a short period. Try to re-examine your finances and save as much as you can through cutting back on expenses and then retry the home ownership route. The reason you should consider waiting and saving more money for the down payment is that home ownership requires outlays that you do not have when renting. You will need to have funds available for unexpected repairs, insurances, landscaping, real estate taxes, and much more.
Having a home is the ultimate American dream. Consider that you can have a place to decorate and make your own, have a yard for children and pets, be able to take the tax deductions, and be able to live in a safe neighborhood. Pride of ownership is a very important motivating factor in your hunt for the perfect home.
Keep the end goal in mind and make it work out to your best advantage. Having a home of your own provides many benefits to you and your whole family and is worth purchasing correctly.
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