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important
factors to consider
"Am I ready
to buy a house now?" Almost everyone at some point aspires to the
"American Dream" of owning a home…but there are many things to consider
before making such a big commitment. Are you in a career path that
has you staying in the area for at least a few years? Is your family
ready to purchase a home? And, are you financially able to make
the investment?
Here are some
of the most important factors to consider when assessing your ability
to purchase a home:
- do you have a stable employment history?
A steady
income is one of the most important factors a lender will use
in determining whether or not to approve you for a loan. Steady
job history suggests that you will be able to pay back a mortgage
loan. So, what would be looked on as steady employment? Generally,
if you have been working consistently for the last two years,
a lender will consider your job history stable.
- do you
have good credit?
Do you have a record of paying your rent and bills on time?
Lenders want to know if you handle credit responsibly and if
you can be trusted to make payments on your mortgage.
Before you
are given a loan, a creditor will run a credit check to verify
your debts, the amount of your monthly payments, and the length
of time remaining before they are repaid. Credit bureaus keep
records of consumer debt, and you can request the same credit
report your lender will order. It might be a good idea for you
to do so in order to have any inaccurate information corrected.
If you have
never used a credit card or borrowed money, you can establish
a credit history by compiling documentation of payments to landlords
and utility companies.
Negative
credit information would include late payments, repossessions,
judgments, liens, and bankruptcies. A few late payments probably
won't prevent you from getting a loan, but if you have had a
foreclosure on an earlier mortgage or declared bankruptcy, you'll
most likely have to wait a period of time before lenders will
grant you a mortgage loan.
- do you
have the money for a down payment and closing costs?
You
can probably expect to make a down payment of at least 5 percent
of the purchase price of your home. And you can expect closing
costs to total another 3-6 percent of the price of the house.
So, if you want to buy a $120,000 house, you'll have to have
at least $9,600 to $13,200 up front.
That's no
small change, but there are some government-sponsored loan programs
that require little or no down payment for qualified borrowers.
It might be possible for you to apply for a Veterans Administration
(VA) loan or a Federal Housing Administration (FHA) loan to
assist you.
Think about
how much houses cost in your area, and about how much of a down
payment your loan will require.
- can
you afford mortgage payments?
If you can get a mortgage loan and have money for the down payment
and closing costs, this is the one remaining obstacle. How much
you can afford to put down on a house, combined with how much
you can afford in monthly mortgage payments, will determine the
price range of your future home. If you find that this doesn't
meet your expectations, you'll either have to choose a less expensive
house or neighborhood, or keep renting while you save additional
funds.
Read How
Much House Can You Afford? and use the accompanying calculator
to determine how much you can afford to spend on a house.
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advantages
to owning a home
There are many
advantages to owning a home, including:
- a place of your own
Home ownership brings feelings of freedom and stability.
As a homeowner, you no longer have to worry about pleasing your
landlord or following someone else's rules. You decide how you
will live in your own home, and you are free to modify it to
your individual tastes.
- stable
housing costs
As a
homeowner, you will not have to anticipate rent increases. Most
mortgage payments remain essentially unchanged throughout the
life of the loan. So, as inflation rises and payments don't, you
may actually enjoy "cheaper" housing.
- tax
benefits
Home ownership opens the door to tax advantages renters aren't
entitled to. Since interest on a mortgage is typically tax deductible,
you may substantially save on income taxes as a homeowner.
- a good
investment
Houses
usually increase in value during the years you live in them. And
as you make mortgage payments, you build equity. Rental costs
offer no long-term benefits, but your mortgage payments can be
viewed as a kind of investment or savings plan. The equity in
your home can be borrowed against or converted into cash when
you sell, while renters take nothing with them when they move.
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challenges
of home ownership
Conversely,
there are a few new challenges of owning a home, including:
- expense
You will frequently pay more for housing as a homeowner
than you did as a renter, at least for the first few years.
Even if your new mortgage payments are less than you paid for
rent, homeowners have the added expense of property taxes, homeowner's
insurance, utilities and upkeep.
- increased
responsibility
Mortgage payments are not the homeowner's only responsibility.
Home ownership also entails maintaining and repairing your new
home and property. You'll also have to be prepared to go out and
shovel your own driveway on cold winter mornings.
- decreased
mobility
Because
selling a house takes considerably more time and work than giving
30 days notice to a landlord, homeowners lose some of the flexibility
they may have had as renters. Remember: Purchasing a house is
a big investment, so give it plenty of thought. Once you decide
to purchase, you'll want to carefully consider what you want
and how much you can afford.
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