With every rent check you write, you're helping to build equity in your landlord's property. That money could be going toward building equity in a home of your own. Today's rates are low enough that your house payment could be lower than your rent payment!
There are many advantages to owning a home, including:
- Security - A feeling of security that comes from owning a home and the knowledge that your home is a safeguard against inflation.
Investment - Payments on your mortgage loan mean you are acquiring a major possession; instead of rent, you own more and more. The garden you plant, the permanent improvements you make - all enhance your way of living as well as the value of your home.
Tax Advantage - Your real estate taxes and the interest on your mortgage are deductible from your income tax.
Financial Independence - Most people start on the road to financial independence through home ownership. Your principal and interest payments remain the same for the full term of your mortgage while your rent usually goes up as the cost of living increases.
Environment - Your children grow up in the neighborhood of your choice.
Cash Equity - Better than a savings account, your home can appreciate to keep pace with inflation.
Satisfaction - Home ownership offers special advantages that make life more enjoyable - backyard barbecues, large family gatherings during holidays, a home workshop, a chance to enjoy your family's companionship in the privacy of your own home.
How Much House Can You Afford?
Simply put, you can afford a house that costs as much as the largest monthly mortgage payment you qualify for.
A quick way to estimate the size of mortgage you qualify for is to take your gross monthly income (that's before taxes and other deductions) and multiply it by .28. This works out to just over 1/4 of your gross income.
Mortgage companies use something called qualifying ratios to determine how much they'll lend you. Most mortgage companies use either a 28/36 ratio or a 25/33 ratio.
- The first number in each pair is the percentage of your gross income that the lender would consider acceptable as a monthly mortgage payment (i.e. if you make $3,000 per month, 28% of that is $840 per month).
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The second number in each pair is used when all debt payments are considered, not just the mortgage. (i.e. if you make $3,000 per month, but also have a $250 a month car payment, 36% of $3,000 is $1,080, minus the $250 car payment equals $830).
As you can see, in this example the numbers work out to be almost the same. Obviously, if you have more debt you would qualify for less.
Financing Overview
Most real estate professionals and mortgage lenders recommend pre-qualifying for a loan before selecting a home to purchase. This process will help you:
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Determine the price range you can afford.
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Understand the types of loans you qualify for.
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Determine what your monthly payment will be.
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Estimate the down payment and closing costs.
The Loan Process
Your Sales Associate will help you to select a mortgage lender. Once you have made your decision, these are the steps of the process:
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Application - All pertinent documentation is obtained. Fees and down payments are discussed, and the borrower will receive a Good Faith Estimate (GFE) and a Truth-in-lending statement (TIL), itemizing the rates and associated costs for the loan. You will be asked to provide certain documents to your lender in order that your loan can be processed in a timely manner.
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Loan Submission - Once all the necessary documentation is in, your completed file is submitted to a lender for approval.
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Loan Approval (Underwriting) - Loan approval, or underwriting, generally takes 24 to 72 hours. All parties are notified of the approval and any loan conditions that must be received before the loan can close.