At AMI Lenders, we believe 2022 is still a good time, especially for first-time buyers, to get a mortgage and purchase a lovely house for you and your family. Interest rates are still attractive compared to previous decades, and house price increases have slowed since the recent pandemic. Finally, buying a house with a fixed-rate mortgage is still a good hedge against inflation's effects.
This article briefly reviews the financial aspects you must evaluate to make an informed decision on whether you are ready to commit to a mortgage to purchase a home.
Aspects about your personal finances to review:
To begin with, it all boils down to whether you are ready for the long-term commitment of owning a house. When you rent, you can always find (if you are lucky) a place to live where you pay less than previously. That does not happen when you purchase a house: property taxes (due to increased home value), maintenance and upkeep, and unexpected repairs will all go up in price as the years go by, even though your monthly mortgage payments could stay fixed for the loan’s duration.
So, to help you along the house purchase decision, you should honestly answer the following questions.
- Will your job situation permit you to live in the same place for the next four to seven years?
This aspect is quite important. You don't want to face the prospect of moving to a different city in the first few years of homeownership. Most likely, you will suffer financial losses from being unable to recoup the closing costs you paid when purchasing the house.
Then, once you can easily say it's most probable for you to live in the same house for at least half a decade, you can find a property within your financial means. Let's say you've found one; what else should you consider?
- Are the expected mortgage payments below 30% of your monthly income?
It is a well-known "rule of thumb," as most lenders will not extend you a mortgage loan if you exceed this percentage. It helps if you calculate what you spend on basic needs such as food, medicine, education, utilities, and car maintenance before you decide to get a Private Loan. Suppose your mortgage payments are more than 30% of your total budget. In that case, you may be better off looking into purchasing a less expensive house. Take your time and find it!
- Can you afford the Down Payment?
One tall challenge for first-time home buyers is gathering the down-payment amount. Depending on the loan, you must come up with 15%-30% of the property's price. If you put down less than 20%, most lenders will require you to purchase private mortgage insurance, which only adds to the monthly payment. If you are not there yet, keep saving and wait for a few years. You might want to prepare a monthly budget to determine where you may be overspending. Then, you can cut expenses which can be put into a savings account specifically earmarked for your future down payment.
- Will you still have savings after paying the Down Payment?
This is indeed critical. It would help if you planned on having at least five to seven months of your household's monthly expenses in the bank. This sum is after the down payment, the initial payment and needed initial home repairs. You never know when you'll face an emergency (medical, job loss, a car crash, total loss, etc.). Meeting the expenses through credit cards will only lead you into further financial trouble.
- Are you planning on taking early withdrawals from your retirement account to purchase the house?
Don't; it is not a good idea. Even though there is a law allowing you not to pay taxes on early distributions for first-time home buyers, using your retirement savings might not be in your best interest. Retirement accounts are precisely for that use: for retirement. You do not want to compromise your future financial stability to make ends meet when purchasing a home. This fact alone could signal that you are not ready to own a house yet. Keep on saving, and hopefully you'll be ready soon.
- Is your credit rating in good standing?
The better your credit rating, the better financial terms you'll get in your mortgage. So, find out where your credit rating stands and then try some concerted actions to improve it. It does not have to be outstanding, but it does have to meet specific basic standards.
At AMI Lenders, we are in the business of helping our clients succeed in their real estate investments. Our advice is always geared toward financing the right property at the right price and with the appropriate loan terms. Whether you are a first-time home buyer or are a seasoned real estate investor purchasing large or small real estate property, we are here to help.
If you want to purchase a property in Houston and surrounding areas, consult with AMI Lenders. We are one of Houston's fastest closers, and we will become your financial ally. We fund our loans and can close loans as fast as the law allows. Houston Borrowers will also have difficulty finding better rates for hard money or private loans than those we offer. We want our customers to succeed and take advantage of the financial opportunities provided by investing in real estate. Visit our website today and fill out an application for a loan backed by a mortgage.