Make sure you’re ready for a Home Mortgage Loan
Because buying a home is often the largest financial investment you will
ever make, you should first determine if now is the right time for you to get into the
housing market. There are a few basic questions you can answer that will help you decide.
We’ll walk you through this assessment by supplying you with some information and tools to
help you evaluate your situation. After you’ve answered these questions and done a little
personal number crunching, you should have a pretty good idea if you’re ready.
Am I better off renting?
Plug in your current rental and potential home purchase numbers to find out if
you should rent or own.
Buying a home isn’t always the best decision, even if you think that you’re ready.
There are benefits to being a homeowner such as tax deductions and building equity. But
there are also potential disadvantages you should consider like managing the monthly mortgage
payments and coming up with the money for a down payment.
How much can I borrow?
Enter your income and debt information to see both conservative and aggressive estimates of
how much money you can borrow.
This is really a two-part question: how much can you borrow and how much should
you borrow. The first part of this question can be answered by using a standard calculation called the
debt-to-income ratio. Basically, lenders don’t want your total debt to be more than 36%
of your gross monthly income. This percentage includes your mortgage payment and any auto,
credit card, student loans or other debt you currently have.
The second part of this question isn’t as easy to quantify with numbers, but instead
asks how much debt you are willing to live with. An aggressive approach has you paying more
each month for a more expensive home while a conservative approach gets you a less expensive
home with more manageable mortgage payments and less overall debt. This decision is based on
how you prefer to manage your money and debt.
How much will I save in taxes?
Get an idea of the tax deduction you’ll receive.
This is another question that helps you determine if you can afford to buy now. When buying
a home, you may be devoting more of your monthly salary towards mortgage than you currently do
towards rent, but you will get a tax break from owning that you wouldn’t from renting.
The difference may offset the higher monthly payments, so it’s worth understanding how
your taxes will be affected.
After answering these questions, you should be able to decide if now is a good time for you
to buy a home. You should also have an idea of the amount you can afford to spend on a home. If
you feel good about these numbers, let’s begin preparing for the home-buying process.