Are you Ready to Buy a Home?

Buying a new home is an exciting milestone in a person’s life. But, unless you are well prepared, it can also be a scary one. There are several things to take into account when considering homeownership. The most important are the financial considerations. 

What Can You Afford?

The house you desire and the house you can comfortably afford may differ depending on your financial situation. You will need to look at several factors to determine how much you can afford to spend on a home. One major factor is your debt-to-income ratio or DTI. 

Determining the amount of mortgage you can afford is done by figuring out your DTI. The standard rule is a 43% DTI ratio. This is the amount used by the Federal Housing Administration (FHA) for mortgage approval. The ratio is used to assess the borrower’s ability to make monthly mortgage payments. Real estate markets and current economic conditions can impact whether a lender will be more rigid or lenient when approving a loan.

The DTI ratio means that your housing expenses, including mortgage, mortgage insurance, property taxes, homeowners’ insurance, and other housing-related expenses, should not equal more than 43% of your gross monthly income.

Your mortgage is a long-term commitment, so the lender needs to be sure that you can make your payments. However, lenders understand that unexpected things can happen that may affect your ability to pay your mortgage. For this reason, your mortgage lender will consider your front-end DTI. This calculation considers the income you have with just the housing expenses alone. This ratio is ideally no more than 28%. This front-end DTI is considered because there may come a time when you may run into a financial crisis, and you would have no wiggle room to manage those unexpected expenses.

The Down Payment

Another major consideration in getting ready to buy a home is the down payment. Ideally, you want to be able to put down 20% of the price of the home. This will allow you to avoid private mortgage insurance (PMI), which is usually added to the mortgage payments. 

You can buy a home without putting down 20%. Some people decide that they will not be in their home that long, or they may not want to put down that much money, to begin with. The larger down payment has its advantages, though. Your mortgage payments may be smaller, and you may have a better choice of lenders with a larger down payment.

Buying a new home is a big investment and knowing how to prepare for this milestone is helpful. At Voila Real Estate, we can help you decide if this is the right time for you to buy, and we can help you find the home you want. Contact us today to schedule an appointment.

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