June 17th, 2016 6:39 AM by Jackie A. Graves, President
up to buy a home is no easy feat.
of the key components of being able to successfully buy a home is having enough
cash for a down payment plus closing costs. Generally, you’ll
need at least $20,000 to buy a home. The old 20% down rule does mean a low
payment, but may or may not make sense for your specific financial
situation. As you continue to save, your ability to buy a home could be compromised
if you are in an area such as Sonoma County, California, or other pockets of
the country where prices continue to rise.
Can you get in now?
Does it make sense? If you have enough money to also meet your other financial
obligations, buying a home with a long-term, fixed-rate mortgage is generally a
On the other side, if
you’re in a competitive market, buying a home now may mean taking on a payment
slightly higher than might be financially optimal. It may mean a higher payment
until you can pay off some debt, you come into some cash, a life event happens
or your income is set to rise. If you know one of these things will happen,
taking on those higher mortgage payments could make sense. If not, it may be
best to wait.
Here are some other
factors to consider when deciding when to buy.
1. Rising Interest
If rates go up, even a
little, your payments likely will as well. Every .375 rate increase generally
means you pay $75 more per month on every $100,000 borrowed. In other words,
the more home you are trying to buy, the more exposure you have to payment
volatility based on changing rates. This, of course, ties directly into how
much payment you’re looking to handle on a monthly basis.
2. Rising Home Prices
or a Higher-Priced Home
typically move at a faster pace in terms of volume, activity and appreciation
than your ability to save. If you are saving 8% of your gross income, but homes
are appreciating at 10%, for example, you are going backwards. It means your
down payment will be worth less as the home may inevitably cost more in the
future, depending on your market. If you were to buy a home today for $550,000 or wait a
year and that $550K home is a now a $600K, you would’ve missed an opportunity.
If you are looking to
buy a home, and you can afford the mortgage payment, generally speaking it
might make sense to do so knowing that you would be on a fixed-rate,amortizing
principal-and-interest mortgage – nothing exotic – while continuing to build
equity in your home. This way you have two factors at work in your favor: the
equity built up by virtue of making your payment each month, and your home’s
increase in value.
Case in point: if you
buy that house at $550,000 today and that house becomes $600,000 in 12 months,
you can refinance for payment reduction, making the home more affordable.
3. Your Credit Score
you don’t need a perfect credit score to get a mortgage, people with scores
below a 620 can have a tougher time securing financing. If your score is
subpar, it’s a good idea to try and clean up your credit before you look to buy
a home. You can pull your credit reports for free each year from
AnnualCreditReport.com, then hunt for and dispute errors and discrepancies.
hard to improve your score may also help you nab
a better interest rate, so the state of your credit score is worth considering
before you buy a home. You can monitor your progress by viewing
two of your credit scores for free each month on Credit.com.
Scott Sheldon - To view the original article click here