Just about everybody would love to own a home. It is the American Dream. However, there are numerous obstacles that will stand in the way. Certain financial factors may prevent—or at least hinder—the opportunity for some Americans to secure a mortgage and buy a home.
Bankrate.com recently conducted a survey of over 2,600 adults who want to buy a home, but haven’t yet. High home prices, outstanding debts (student loans/credit cards), and bad credit all rated highly on the list. Yet, the No. 1 hurdle according to this survey is insufficient income. Potential homeowners simply do not think they make enough money in order to afford a house.
This is an interesting result to the survey, but it is an accurate one. Someone may be able to qualify for a mortgage based on their relative income to the price of the house and the interest rate they can secure through a mortgage lender. Whether or not you can afford the monthly mortgage payment is only one aspect to take under consideration.
“You need to look at what is your list of monthly expenses, including what a lender doesn’t consider when they are assessing your eligibility for a loan,” says Deborah Kearns, one of Bankrate.com’s leading analysts. “You need to take into account all of the other bills.”
The chart above shows the full results from the poll. You’ll notice debt falls at the bottom of the list while affordability factors such as home price, not enough income and inability to afford down payment or closing costs.
Regardless of the obstacles, home ownership is a dream almost all of us hope to achieve at some point in life. If you are serious about buying a house or condo, it pays to take control of your personal finances and take positive steps toward your ownership goals. Here are a few things you can do:
1. Understand Your Income
Taking the time to understand your income, spending habits and average monthly expenses is a very important step to take. If you are serious about buying a home, take a few months to really analyze what you earn and how you spend it every month. Look at your bills and your debts in terms, as well.
Also, plan ahead for certain added monthly expenses that come with owning a home. This will include property taxes, homeowner’s insurance, HOA dues and private mortgage insurance (PMI) if you aren’t able to put as much money down. Financial experts recommend that the total of these expenses shouldn’t exceed more than 28 percent of your monthly income. When you factor in debt payments such as credit cards and student loans (in addition to your monthly homeownership costs), that total should be 36 percent of your income or less if you want to live comfortably.
2. Start Saving
The more you understand your income and expenses, the better you will be able to start saving and planning for your home. Set aside as much money as you can each month. Putting more toward your down payment and/or buying interest points upfront can reduce your interest rate and also eliminate the need to pay monthly PMI. Until you have paid off at least 20 percent of the home’s principal cost, a majority of mortgage loans will require you to pay mortgage insurance.
3. Be Prepared for Unexpected Expenses
No matter how much you plan for home ownership, you can’t be prepared for everything. Bankrate.com also surveyed homeowners about what regrets they have after buying a house.
As you can see in the chart, a majority of those surveyed haven’t regretted their purchase at all. However, nearly half did have at least one regret. One of the biggest issues was not realizing how much maintenance and repairs would cost.
Many new homeowners quickly realize that the price of homeownership doesn’t end with the mortgage, interest and insurance payments. Other expenses surely happen during the course of homeownership. Repairs need to be made, the property needs to be maintained and upgrades will be desirable. Be sure and do your research when considering a home. If it needs repairs or you want to remodel, that is going to cost you money. If there’s a yard that needs professional landscaping or a pool that you have to have cleaned and maintained, those could be other factors to consider.
Making the Right Mortgage Decisions
Buying a home—especially your first home—is the most significant purchase you will ever make in your life. It’s important to understand your own financial situation and do your research about what it takes to buy and then maintain a home for as long as you wish to own it. When you make wise decisions, it will be the best investment you can make.
For mortgage help in San Diego and throughout Southern California, Transparent Mortgage is here to guide you. We can look at your financial situation with you and make the right mortgage decisions. Call us today at (619) 701-3906.