Most people have a dream of owning their own home. They can envision making their house a home with their spouse, the kids playing in the yard, and not having to throw money away on rent.
While renting is a great short-term solution for affordable living, there are many instances where owning a home is actually more affordable in the long run. But where does one even begin, especially when it comes to finances? We’ve tackled some FAQ when it comes to taking out a loan to purchase a home.
Do I have to have 20% down payment?
The short answer is, no, you are not required to put down 20% on a home in order to be approved for a loan. However, most loans will require private mortgage insurance (PMI) for those who do put down less than 20%.
How do I get pre-approved?
It is not required to be pre-approved when buying a home. However, pre-approval does speed up the process. Should you go through this process, you should expect the following information to be examined:
- Your credit score(s)
- A lengthy, detailed application
- Two months of pay stubs
- Three months of checking and savings account information
- Two years of tax information (W-2s of 1099s)
- A copy of your driver’s license.
This process will soon tell you the loan amount in which you qualify allowing you to browse homes you know will be within your budget.
How do I know if a mortgage is within my budget?
A conservative budget approach would have about 25-28% of your monthly income allowed for your housing costs. This includes mortgage, property insurance, as well as property taxes. If you have other debts, its encouraged that your total debts being paid monthly should be kept around 33%. Most lenders approve a loan amount that Is equal to 30-35% of your monthly income. At the end of the day, it is your decision when it comes to how much money you spend on your monthly housing costs, but it is also important to take into account job security as well as the market as a whole. You don’t want to be left with a mortgage that you cannot make payment on monthly.
Explore loan options
There are many different kinds of loans available to home buyers. Explore options with your lenders to see which kind is the right fit for you. You may want a fixed rate, FHA, Rural Development loan, or even a VA loan if you have served for the US military. Don’t be afraid to ask questions about your options.