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So you've decided to take the plunge and purchase a new home? Congratulations! Becoming a homeowner is a very exciting event in your life! Homeownership has benefits that renting simply cannot provide, such as:

  • Potentially deducting your mortgage interest on your tax return
  • Build equity in your home
  • Avoid monthly payment increases
  • Improve your credit by making mortgage payments on time
  • Last but not least, it’s yours!

Now, before you get excited with the idea of homeownership and start the house hunting process, it’s important to understand what you can afford.

Understanding your credit.

Your credit score plays an important role in determining your affordability and whether you can become a pre-qualified home owner. Credit is defined as "the ability of a customer to obtain goods or services before payment, passed on the trust that payment will be made in the future".

Credit is extended by department stores, finance companies, oil companies, credit unions, commercial banks, and credit card companies. Those who extend credit are called creditors. For credit to be extended, creditors look for various factors such as income, length of employment, how long you've lived at one residence, previous credit history, among of outstanding debts, stability in your checking and savings accounts, number of dependents, etc. The creditor will also look at the collateral you are purchasing. If you fail to make payments on collateral purchased with credit, it’s possible that the creditor may repossess items like furniture and appliances, however, when it comes to foreclosing on a home, it’s a lengthy and costly process. Therefore, lenders assume greater amount of risk at lower interest rates. Thus, the lender will evaluate your ability to repay a home loan based on your credit history, and other underwriting guidelines such as debt-to-income, income, etc.

Assessing your budget

The next step in preparing for homeownership is assessing your budget. A budget is a plan that lays out your income and expenses as precisely as possible. Budget and spending are critical in using your credit more wisely and meeting your financial objective (such as saving for your down payment or making a mortgage payment!).

By creating a budget plan, you will uncover your spending habits, and discover places you can save. To begin assessing your budget, identify your monthly income and expenses. This will allow you to understand where your income is coming from, how much, and what expenses must be paid using your income.

During this process, you may identify areas where you can decrease your spending, and increase your savings. As a homeowner, saving money and setting funds aside is critical - the money you save can aid needed maintenance or pay for unexpected repairs. Emergency maintenance funds are always good to have!

While to plan for homeownership, you may want to think about saving for a down payment. Setting funds aside for down payment may prove to be difficult but necessary component of home buying process. After you identify your budget, set a goal to save money for down payment. Once you've reached your goal, you can move to the next phase of home ownership!

Here are some tips for setting up a savings fund whether it's for a down payment or emergency maintenance fund:

  • Set a goal - Identify a specific, monetary goal that you want to achieve.
  • Realistic Goals - make sure your goals are realistic. Setting the bar too high can lead to frustration and failure.
  • Practice, practice, practice! - Practice your will power by trying not to overspend. Urges to spend may appear, so make sure you practice your discipline. When you get those tempting urges to spend, think about your goal!
  • Be flexible - make sure your savings plan is not too rigid! Your lifestyle and financial situation is ever changing. Make sure your savings plan is flexible enough to accommodate these changes.
  • Be a record keeper - best way to achieve your savings plan is by keep track of what you spend and reviewing your spending periodically. Record keeping will allow to you understand your spending habits and visually show how well you are keeping up with your savings plan. You can also evaluate if adjustments are needed by reviewing your records.

Get Pre-qualified for a mortgage

Getting pre-qualified for a home loan will help you determine your affordability and whether you are ready for homeownership. Many times, home buyers will find the right home first before getting pre-qualified, only to find out that their dream home is only a dream. Don't disappoint yourself in the house hunting process! Understand what you are pre-qualified for, then go house hunting for the amount you are pre-qualified for.

Prequalifying shows you how much you can afford to spend on a home based on where you stand financially, taking into account your past credit history, income, debt and savings, etc. Pre-qualification can determine the estimated purchase price and monthly mortgage payment that you can afford and qualify for, as well as how much money you will need for down payment.

You can get pre-qualified through ha loan officer or home-purchase education counselor. Prequalifying is not a commitment on your part to work with a particular lender or real estate agent, and it does not guarantee you a loan on the lender's part. That all happens during the actual loan application process.

So what's next? Get pre-qualified by starting an application with your licensed loan officer!

 

Christopher Murray, Sr. Loan Officer, AVP NMLS #103453
Homeside Financial
4141 Parklake Ave Suite 530, Raleigh, NC  27612
Cell:  (919) 656-8375
cmurray@gohomeside.com
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