Purchasing Your First Home

Posted by  on May 13, 2010
If you are debating whether or not to purchase your first home, remember that it is a big decision and several things should be taken into consideration. Keep in mind that it is important to find a home and a home loan that satisfy your needs in the present, as well as in the future. Do you plan to have kids in the next few years? Do you plan on starting a business out of your home? Be sure that the home has what you will need now, and in the years to come, so that you do not outgrow the home and have to leave it prematurely.

It is possible to find a lender for almost any financial situation. However, if your past financial history is good, you will have better home loan options to choose from. Generally, a couple of late payments on a credit report will not affect you that much and you will be considered a good credit risk, qualifying for lower interest rates. If you have more issues on your credit report, lenders like Quicken Loans may still provide you with a home loan, but because you are more of a risk to the lender, you may have to pay a higher interest rate and fees.

There are some people who believe that you should refrain from borrowing as much as you qualify for so as not to stretch your financial boundaries. Others feel you should stretch to buy as much home as you can afford because with expected increases in your earning potential, a big payment today will seem like less of a payment in the future. Only you can make this decision.

The amount of time you plan on living in your home will have an impact on what home loan you choose. If you plan on staying there for more than ten years, a long-term fixed-rate mortgage might be a sensible choice. However, if you know you're going to move within three to five years, an adjustable rate mortgage (ARM), with its lower payment options, might be a better choice.

One common guideline is to follow the "28/36" rule. This rule says that your monthly housing costs should not exceed 28 percent of your monthly income, and your total debt payments should not exceed 36 percent of your total monthly income. If your payments do not follow the 28/36 rule, do not worry. Lenders offer mortgages customized to each borrower's individual situation. Depending on your assets, credit history, job potential and other factors, lenders can work with ratios 40-60% or higher.

The national average for how long people live in their homes is approximately seven to nine years. Reasons for leaving a home can vary widely, but if you purchase a home and decide to move after only a short time, you may end up paying money in order to sell it. Generally, the shorter you are in your home, the less time your home has to appreciate, perhaps not enough to recover what it cost to buy and sell the home.

The amount of time it takes to recover those costs can depend on various economic factors. In most parts of the country, homes appreciate at an average of five percent per year. If the area where you buy your home experiences an economic upturn, it may take less time to recover those costs. Conversely, if the local economy is not doing well, it may take longer.

Generally, homebuyers will need money for the down payment and closing costs in order to close the loan. However, you do not always have to have a lot of money for a down payment, as long as you are a good financial risk to a lender. Several loan options today offer zero down and low down payment home loans. Even if your credit is not perfect but you have managed to save 10-20% for a down payment, you will still have some very good mortgage options.


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