For most people, a home purchase will likely be the largest purchase that they will make in their lifetime. So, it’s important to be as educated on the subject of home ownership as possible. In order to help you out, we have created a list of a few things to keep in mind when looking to see how much one can afford to spend on a house.
How much is needed for a down payment?
Twenty percent down of the home value is still the standard when buying a home. If 20 percent down is too much for you at the moment, there are still other options for homeownership. In the last few years, banks have begun giving out mortgages with a down payment as low as 3 percent. If you are buying a $200,000 home then your down payment could vary from as high from $40,000 to as low as $6,000 depending on your bank or credit union.
What mortgage can I afford?
Unfortunately, the mortgage is not the only cost associated with buying a home. You also have to account for closing cost, which is typically between two & five percent of the home price. So, if you are buying a $200,000 home, then your closing cost will be between $4,000 and $10,000. Also keep in mind that closing cost and down payment are not the same thing. Closing cost includes things like appraisal fees, title insurance, taxes and credit report charges.
What about credit History?
The biggest factor on whether or not the bank approves your loan is your credit score. That’s why it’s vital to not miss any credit payments since this will only hurt your credit score. Keeping a high credit score is important because your mortgage rate will be lower the higher your credit score is. A high credit score can save you tens of thousands of dollars through the 30-year loan.
For conventional loans, the minimum credit score typically is 620. If you qualify for a FHA loan then the minimum credit score is just 580.
There is plenty to consider when purchasing a home. This is no easy decision, that’s why here at NFCC we have certified counselors to help you make the best decisions surrounding your financial situation. Contact a NFCC certified counselor to begin getting help with your home purchase.