Getting Started On The Way To Home Ownership
Buying a home is the largest purchase most people will ever make. Home ownership has great benefits. Home ownership also comes with certain responsibilities.
Are You Ready for Home Ownership?
Look at your current situation and determine if:
- You have a continuing and reliable source of income prior to applying for the loan.
- You have a credit history that shows you’re ready for home ownership.
- Your total debt is manageable and you can afford to take on the costs associated with home ownership.
- You have money saved for a down payment and closing costs.
Once you fully understand your current situation, it’s important to look at the pros and cons of home ownership to make the best decision for you and your family.
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Benefits of Home Ownership
Home ownership has many advantages – both financial and personal. But buying a home is an important decision. Look at the benefits and the differences between home ownership and renting to better understand if owning a home is right for you.
What are the benefits of home ownership?
- Tax savings
You may earn significant tax savings because you can deduct mortgage interest and property taxes from your federal income tax and many states’ income tax if you itemize your deductions.
- A more stable monthly housing expense
Your monthly housing loan or mortgage expense can remain the same for the life of your mortgage, depending on the type of loan you choose.
You may build equity in your home over the life of your loan, which allows you to plan for future goals like your child’s education or your retirement.
Home ownership is not right for everyone. It may not be the right time in your life or you may not like the commitment associated with owning a home. Here are some differences between renting and home ownership:
- Renters are typically free from maintenance obligations such as repairs or lawn care.
- Homeowners often have more freedom in decorating, landscaping, etc.
- Renters can move more easily and more quickly than homeowners and there are higher costs associated with buying and selling a home.
- Homeowners have a financial investment and may build equity in their home.
How Much Can You Afford?
To get a quick idea of what you can afford to spend, multiply your annual gross income (before taxes) by 2.5. For example, if your annual household income is $50,000, you might be able to qualify for a $125,000 home. This is just a rough estimate – the actual number will vary based on factors such as your debt and credit history.
Mortgage lenders typically use the housing expense and debt-to-income ratios to more accurately determine how much you can afford to spend on your mortgage.
Housing Expense Ratio
Mortgage lenders recommend that your monthly mortgage payment should be less than or equal to a quarter of your monthly gross income. This percentage can change based on the type of mortgage you choose and sometimes the area in which you’re looking to buy.
You need to factor your other debts into determining an affordable monthly mortgage payment. Mortgage lenders look at whether your total debt is larger than 30-40% of your monthly gross income. Remember, debt is not just credit cards and student loans. It can also include alimony, child support, car loans, and housing expenses.
A mortgage lender, a housing counselor, or consumer credit counselor can help you better understand these guidelines. Before you talk to a financial professional, you can organize your financial picture by creating a budget. Don’t forget that you also have to save for the down payment, closing costs, inspections costs, moving, and other related expenses.
What to Look for in Pre-Owned Homes
Check For Properly Working Appliances/Fixtures:
- Ice maker
- Garbage disposal
- Range hood
- Trash compactor
- Vent fan
- Heating fan
- Kitchen cabinet doors
- Lights (interior & exterior)
- Heating system
- Ceiling fans
- Hot water system
- Air conditioning system
- Electrical outlets
- Door bells
- Water purifier
- Fireplace damper
Ensure Manufactured House Is Well-Built & Systems Are In Working Condition:
- Poor Ventilation
- Brick bulging or cracking
- Shingles missing or broken
- Siding rotted or missing
- Gutters damaged or need to be cleaned
- Concrete cracked in sidewalks/driveway
- Sub-flooring damaged or loose
- Cracked walls or ceiling
- Cracked tiles
- Flooring damaged
- Soft, springy floors
- Water stains near windows
- Water stains on ceiling below bathroom
- Water stains in attic
- Pipe insulation missing
More About Getting Started in Home Ownership
Lenders evaluate mortgage applications a lot differently today than they did even 10 years ago. And even more has changed in the last 2 years. What used to close the door to home ownership may once again be a factor today.
Here are some common home ownership myths:
You may still be able to buy a home with less-than-perfect credit. And remember, you can improve your credit over time. For information on how to improve your credit and credit score, click here.
There are many types of mortgage products and programs that allow low and no down payments. But remember to factor in other costs such as closing costs, property taxes, moving expenses, and repairs. There are no property taxes involved in a home purchase at Fountainhead.
However, in buying a mobile manufactured home you should expect to have ABOUT 20% for a down payment. This will usually result in a housing payment: land-lease payment that is affordable–less than your current home ownership costs and less than or equal to an apartment rental.
If you’re a legal resident, you can purchase a home in the U.S.
Having a bank account is always a good idea and helps you establish credit. However, lenders can approve you for a mortgage even if you don’t have a bank account or credit cards. You’ll likely need to keep records showing a history of payments you’ve made for items such as rent, utilities, and car payments. Manufactured home lenders are sticklers for documentation, while you may not need a bank account, you will need tax returns and supporting income documentation.
By law, banks and other financial institutions are restricted in their uses and disclosures of information about you. In some situations, you may choose to restrict the disclosure of your information if you don’t want it to be shared.
If you have a financial hardship, such as death of a spouse or a medical emergency causing you to fall behind, it’s possible to keep your home and get back on track. The trick is to contact your lender early. The Federal government has programs to help you keep your home even when you are having problems making the payments.
Not true. You can change jobs several times and still get a loan to buy a home. Lenders understand that people change jobs. The important thing is to show that you’ve had a stable income.