What You Should Consider Before Buying a Home

Purchasing a home can be one of the most significant events in a person’s financial life. For most people, it can be their largest asset or their biggest obligation. Determining the right time to buy will make or break your investment. If you act responsibly, it could be one of the best periods in time to buy a home. Housing prices are at record lows and deals are in abundance. Taking the proper steps can ensure a return on your investment.

The housing market is definitely a buyer’s market. The truth is that most of the country is still recovering from housing decline that started in 2006. In some areas of the country, some homes are listed at prices lower than the average sedan. This won’t last because indicators are showing that the over all market is showing signs of recovery. Some cities are showing appreciation in median home prices and others are still down. Doing a little research about the city your planning to buy in can go a long way.

Interest rates have remained at an all time low. Prime rate has remained at 3.25% for over 8 years and conventional mortgage rates typically are not much higher. Depending on your loan program you could pay less than prime. Deciding on buying your rate will also be something to think about.

How much can you really afford? This is one of the most important questions. Some loans allow for a max of 50% Debt to income ratio. Note that all conventional loans currently have a 41% maximum ratio before the buyer is forced to pay private mortgage insurance. Keep in mind that guidelines change constantly, so make sure to ask your lender. Even with these underwriting guidelines there is still much to consider. You are likely to have other expenses that are not part of your debt ratios. Things like putting money away for retirement and a child that may be going off to college are important to consider.

Your loan program will be a major factor. 20% is a must for a conventional loan. It allow for an equity position from the start getting into a loan. This gives the owner the ability to maneuver if they have to refinance or sell. anything above the 80% the borrower will be forced to pay private mortgage insurance. The reason for PMI is that in case of default debt will fall in to lien positions. Any taxes owed first, 1st mortgage, 2nd mortgage. that 20% can easily fall into third position which creates the need for mortgage insurance. FHA and VA loans are government subsidized loans that come with their own requirements.