But buying a home is one of the most important financial decisions you’ll ever make, so before you get too excited, ask yourself these questions:
Are You Ready to Buy?
Everyone needs a roof over their heads, but you don’t have to buy a home to have shelter. Renting is also an option and both have their advantages and disadvantages.
- Tax benefits; your mortgage interest is usually tax deductible.
- The opportunity to build equity.
- The chance to make your space truly “yours” by painting or remodeling, things you can’t always do when renting.
- Renting makes it easier to relocate, and if you move often, owning a home may not be a good choice.
- When renting, the owner of the house or apartment pays for repairs and deals with problems.
Does it Make Economic Sense?
Does owning a home fit into your current financial plan? While there definite pros to ownership, you need to determine if you can afford the monthly mortgage payment that comes with the size and type of home you’re after as well as the other costs associated with owning a home, like:
- Moving expenses.
- Any updates or repairs you’ll want or need to make at your new house and purchases like new appliances.
- Homeowners’ association fees or dues (if the neighborhood you’re moving into has one).
- Increased utility bills (water, gas, electricity).
Create a budget by looking at your income, assets and other debts to determine the monthly payment you can comfortably make. Depending on current interest rates and how much money you can put down, you can usually afford a house that costs two and a half times your gross annual income (before taxes). Use MAX’s home loan calculator to see where you stand.
Have You Factored in Other Upcoming Expenses?
Before you finalize your house-buying budget, fast forward a bit. Do you have any other major expenditures on the horizon? Are you planning a wedding? Do you still have a lot of student loan debt? Are you considering investing in a business venture that will require a lot of capital? All of these things should factor into your decision to buy – or to wait – and into your budget.
Do You Have a Down Payment?
Almost all lenders require some amount of down payment on a home purchase, usually ranging anywhere from 5 to 20 percent of the price you’re paying for the house. If you pay less than 20 percent, you’ll probably have to pay for private mortgage insurance (PMI).
Is Your Credit "Mortgage-Worthy" at this Moment?
Just because your budget says you can spend “X” amount on a house does not mean lenders will be willing to give you that much. You’re ability to get a loan will depend on multiple factors, including:
- Your credit history and score. You can get a copy of your credit report. It’s free and easy to do. Check each report carefully to make sure it is accurate and report any errors immediately.
- Current debts and assets. Any large debts, like credit cards or student loans, can have a negative impact on a loan decision, so begin paying your debts down and avoid making any large purchases that will reduce your assets or cause you to take on new debt.
Don't Stress It
If you don't like your answer to some of these questions, don't panic. We want to help! Let our mortgage originators assist you and making the right decision at the right time. Our knowledgeable staff can help you lay out a personal plan that suits your specific needs.
We’re ready to help by providing up-front information and simple explanations on mortgage lending terms and rates. Let us guide you through the process of turning a house into your home.
MAX Credit Union is a full-service financial institution serving Central and East Alabama, including Montgomery, AL; Auburn, AL; Opelika, AL; Prattville, AL; Wetumpka, AL; and Troy, AL.