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Issues To Consider When Buying A Home

Issues To Consider When Buying A Home

Buying a house is a huge step that requires careful consideration and planning. To ensure a successful purchase, buyers want to consider all aspects of the investment, such as budget, location, selecting the right mortgage, and other financing options.

How Much Can You Afford?
The amount the seller accepts for their home is the purchase price. But buyers also need to factor in closing costs and other associated fees. Additionally, you should factor in your current and future income to determine if you can afford the mortgage payments and additional costs associated with owning a home. Most lenders will calculate your debt-to-income ratio, the dollar value of your monthly payments on other debts (credit card and other loans), plus your new mortgage payment, then divide the total by your income. Most lenders max out mortgages at 28% of income.  

Once you know the budget, research the community where you want to own property. Answer questions like, what are the school ratings? How far away is a hospital, shopping area, park, grocery store, and other amenities? Is the home on a busy street? Realtors familiar with the local real estate market can answer these questions to help you make an informed decision.

Financing Options
Different lenders offer various rates, terms, and conditions, so consider comparing and contrasting lenders. Most U.S. home buyers (68%) financed their purchases in 2022 with a mortgage compared to the 32% of purchases made in cash, according to Redfin.com. Still, the conventional mortgage loan remains the most common financing tool, making up 78.5% of homes purchased with a mortgage last year. Besides conventional loans, the other most common mortgages are FHA loans, designed to help buyers who don't qualify for conventional loans, and VA loans intended for military members, veterans, and surviving spouses that meet the minimum active service requirement. 

How Do Mortgages Work? 
When you finance a home with a mortgage, the lender agrees to cover the cost of the home minus your down payment, then you agree to pay the lender back in small increments over the loan's term—usually 15 or 30 years. Your monthly mortgage payment comprises the loan's principal (the amount you borrowed) and interest (the percentage the lender charges for borrowing). Your lender may also collect an amount for property taxes and homeowners insurance in what's called an escrow account. The lender then makes your tax and insurance payments on your behalf when they are due. Also, if your down payment is less than 20% of your home's value, your lender wants an extra assurance they are protected in case you default on your loan, so you would need to pay Private Mortgage Insurance until your loan-to-value amount is less than 80%. 

Checklist For Home Buyers
The largest purchase you may ever make is buying a home. As such, you'll want to carefully consider how owning a home will impact your overall financial planning goals. For a complete list of considerations, click on the Home Buying Checklist below. This comprehensive list will help you think about how your life might change and how owning a home will affect future decisions. 

Home Buying Checklist

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