What to Know When Buying a Home

Home Buying Basics: Know What You Can Afford

Buying a home can be a daunting task for even the most well-prepared buyer. In June's SHA seminar, Financial Literacy Educator Mike Crews talked to participants about the steps necessary to ensure they are prepared when the time comes.

There are many complicated pieces of the puzzle when it comes to buying a home that all need to work together to make it happen. With today's unpredictable housing market, homebuyers should make sure they are as prepared as possible before deciding to buy.

"For many, the dream feels unobtainable, especially because of today's housing market. With for sale signs coming down as fast as they go up, bidding wars are frequent. The best way to confront this housing market or any housing market is to be prepared," says Crews. Let's take a closer look at some of the most significant factors to make sure your dream home is a reality.

Know Your Budget

Knowing your budget is a crucial factor when thinking about purchasing a home. Often, buyers have a figure in mind, but it may be something unrealistic that would cause severe financial strain. When determining your budget, the biggest components are your debt-to-income ratio, your overall monthly spending, and how a mortgage would fit into that.

Your debt to income ratio is one of the main points that banks will look at when assessing mortgage qualification. Knowing this ahead of time will be crucial to making sure your budget is within your reach. The amount of your income that covers current debts plus the added cost of your mortgage will be a great tool to make sure you don't overextend yourself.

Your monthly budget or spending plan is also paramount when looking at adding in a new mortgage payment. In addition to your monthly debt payments, you must make sure that you can cover other essential items each month after your mortgage payment is added. Getting a printout of your current bank statements will give you a great picture of where your money is going and how best to shift your spending or cut costs if need be when considering your mortgage.

Know How Much Your Mortgage Will Add to Your Monthly Expenses

Depending on the type of housing or financing you specifically need, several mortgage options are available to homebuyers with different benefits. Though your mortgage will include three main components in most cases, it's essential to know what you'll be paying for each before making a decision.

First, your principal balance. The principal balance of the loan is the most basic component of what you owe. This includes only the repayment of the actual loan amount.

Secondly, your loan is comprised of the repayment of interest. When you borrow money to purchase a home, an interest rate is also an integral part of the equation. Your interest payments will vary depending on the rate decided upon when you close on your home.

The last component of most mortgage payments is taxes and insurance. Many homeowners choose to pay their home insurance and property taxes as part of their monthly mortgage payments. This gives you the advantage and peace of mind to know that your insurance and taxes are always paid on time without worrying about it yourself.

All of these components added together will give you the total for your monthly payment on your mortgage. When deciding on what you can afford, keep these in mind to get the most accurate idea of your payment.

Knowing where all of your monthly expenses lie is crucial to make an informed decision about buying a home. Once you know roughly how much debt you'll be adding by purchasing a home, then you can get the most precise picture of your budget when looking for your perfect house. Coming in with this knowledge will not only make you more likely to get what you want, but it can help avoid disappointment in a competitive homebuying market.

Are You Ready To Take the Next Step In Your Home Buying Journey? Let Us Help!

Everything that you do stems from your home. Let us help you navigate the buying process to ensure your dream home becomes a reality! Our mortgage lenders are happy to assist in whatever way they can. "At Town and Country Bank, we take pride in helping our customers obtain the American dream of buying a home!" says Crews.

Keep Up With Our Financial Literacy Seminars!

To keep up with topics covered in our financial literacy seminars, check out our blog! Information from these seminars is from the Federal Deposit Insurance Corporation's Money Smart program. Not sure where to start your homeownership journey? Visit one of our 12 conveniently located branches or contact us today to learn more about finding a mortgage that's right for you.