Buying a home can be one of the largest purchases or investments a person makes in their lifetime. Figuring out the best loan rates, where to purchase, and hoping the sellers accept your offer can make the entire process feel stressful and open-ended. While you can't reduce all of the uncertainty inherent to the home-buying process, there are some things you can do to ensure that you make the right choices along the way. By figuring out what you can afford, the best loan for you, organization, and getting the home inspected, you can feel much more confident about your decision.
What Can You Afford?
You may be surprised at how much your lender says you can borrow. But just because the bank says you can spend $500,000 doesn't mean you should. Instead, figure out what you can afford based on your monthly budget. According to financial experts, your monthly mortgage shouldn't exceed 28% of your monthly gross income. So, multiply your salary by .28 and then divide by 12. Your monthly payment should stay below this amount, but of course, each family's financial situation may be different.
If your combined family income is $100,000 a year, your monthly payment should stay below $2,333. You'll also need to account for property taxes, mortgage, home insurance, HOA fees, and any necessary regular home upkeep.
What's the Best Loan?
To figure out the best loan for your family, it's a good idea to meet with a loan officer at your bank to discuss your options. A fixed-rate mortgage is the best option for many families, but a loan officer can also show you your 15-year, 20-year, or 30-year mortgage costs. If you have 20% of your home's purchase price saved up for a down payment, you can avoid paying monthly mortgage insurance, also lowering your monthly payment. If you don't have that much saved up, you may qualify for Federal Housing Administration (FHA), Veteran’s Affairs (VA), or rural loans.
Organize Your Documentation
When qualifying for a loan, banks will want to examine your:
- Down payment amount,
- Income and employment,
- Credit rating, and
- Any other financial obligations.
Gather all of this documentation early in your process and make a folder. Collect bank statements, W2s, tax returns, and photo ID.
Get the Home Inspected
Your lender may not require a home inspection, but you may feel more comfortable knowing any possible problems with the home. The home inspection is also a good time to get to know your home. Most inspectors will let you tag along, pointing out the pluses and minuses of your potential home's construction and upkeep.
If you're going through the home buying process, the Law Offices of Melvin Monachan, PLLC is here to help. We can guide you through the closing process and help reduce the uncertainty of purchasing a new home. Call us at (516) 714-5763 to schedule a consultation or contact us online.