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How Much Can You Afford?

The first step on the road to home ownership is to determine your budget and establish what you can afford to spend on a property. Remember, along with paying the mortgage, there are other expenses involved..

Am I ready?

Before venturing down the path toward home ownership, every first-time home buyer should evaluate their personal finances. To help you understand your personal financial situation, I recommend meeting with a loan officer as your very first step during the buying process. The loan officer will be able to give you a fairly accurate assessment of what your target purchase price should be after you provide them with some basic personal financial information. Remember that this initial meeting is to establish your purchasing power and is not an obligation to work with this particular lender.

Things to Consider

Part of your rent payment covers certain housing expenses, some of which are listed below. When you decide to purchase a home, you accept responsibility for paying these expenses. These costs are not included in your monthly mortgage payment but should be part of your budget estimates. They include •

• Property Taxes and Special Assessments
• Home/Hazard Insurance
• Utilities
• Maintenance
• Home Owner Association (HOA) Fee: Doesn't apply to all purchases. Pays for trash and snow removal and maintenance of common grounds, if applicable.
• Membership Fee: May pay for recreational facilities and other services (cable TV).

Understanding Credit

Your credit history plays a big role in your ability to purchase a home. The resources below will help you understand your credit and the role it plays in the home buying process:

Terminology

It's like there's another language for real estate pros and home owners, and getting a good grasp on the lingo is one of the most challenging aspects of the home buying process. Probably the single most important term you'll hear as you search for a home is mortgage:

A mortgage is an agreement, in writing, in which a lender pledges money against a piece of real property

A real property is the home you are buying (the term real is used to differentiate between physical property, such as a house, and other types of securities, such as stock or bond certificates).

The borrower uses the money pledged by the lender to pay the property's seller. Over the term of the loan (usually up to 30 years), the lender holds the ownership documents to the property (the Title) while the lender is repaid in periodic installments. Along with repaying the principal, or borrowed amount, you also pay interest, which is how the lender profits from lending you the money in the first place. The lower the interest rate, the less you will pay each month on the loan.

You should think of a mortgage as a product that you purchase; the goal is to get the best price (lowest interest rate) at the most favorable terms. Therefore, as with all major purchases, you should shop around and research your options before deciding which program is best for you.

Down payments

While most home buyers rely on a mortgage to purchase their home, no mortgage will cover the entire purchase price. Buyers must use their own funds to make an initial payment, known as a down payment, on the home they are buying. Lenders believe that buyers who contribute their own funds to the purchase of a home represent a better overall credit risk.

Conventional lenders may require down payments between 5%-20% of the home purchase price. If a borrower makes a down payment, all of it must be the borrower's own funds. You should seek the advice of a mortgage loan officer for a list of the specific documentation you will be required to produce to show where your down payment funds came from. Not being able to provide this documentation can cause your loan application to be denied


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