Now’s a Good Time to Think About Buying a Home

After last year’s surge, housing prices are leveling off in some areas as the real estate market cools. And sellers are motivated. Their homes may have been on the market since late winter or early spring. Anxious to sell their properties, they now may be prepared to consider lower offers.

Also, as the school year comes to a close, sellers who are planning to relocate their families and get settled in their new neighborhoods before September know they have a specific time frame within which they must work. They’ll be more open to offers, as well.

If there ever was a time to at least consider looking for a home – for no other reason than to discover what it would take from a financial perspective to become a homeowner – it is now.

Low rates

While rates have shifted upward in the last year, they are still relatively low, historically speaking. Plus, rents in many parts of the country are now higher than it would cost each month to own a home, without adding in other benefits, such as tax write-offs relating to holding a mortgage.

You need to think longer term: Consider the long-term benefits of purchasing a home, such as being able to build up your equity over time. Also imagine the feeling when you finally pay off your mortgage. People who are long-term renters will never know that feeling.

Your mortgage professional would be glad to assist you with any questions you may have about qualifying for a home.

Think Like a Lender: It’s a Critical First Step

Most people know that discussing options with a mortgage professional is an important step to finding out how much house you can afford to buy. However, few realize that understanding what lenders look for is also critical to the home-buying process.

First, you need to calculate your current debt load and your price range. To determine your price range, your debt load is reduced to two ratios – the Gross Debt Service Ratio (GDS) and Total Debt Service Ratio (TDS). These limits may vary, but it’s wise to stick to the guidelines.

The first guideline is that your monthly housing costs (GDS) should not exceed 28 percent of your gross monthly income. The housing cost is your monthly mortgage payments, which includes principal, interest, taxes, and heating expenses. Lenders add up your housing costs and figure out what percentage they represent of your gross monthly income. Note that the better your credit score, the higher your GDS ratio can be.

Your entire monthly debt (TDS) should not be more than 36 percent of your gross monthly income. Again, the better your credit, the higher the ratio. Your entire debt load includes housing costs plus all other debt payments – car loans, credit card payments, loans, lines of credit, alimony, etc.

The maximum home price you can realistically afford depends on a number of other factors as well. These include your household gross monthly income, your down payment, and the mortgage interest rate.

If your calculations show that you are ready to begin the home buying process, then the next step is getting pre-approved. Not only is this confirmation that you are approved for a set amount, it will also lock in a favorable interest rate.

The hardest part for many first-time home buyers is saving for the down payment. There are options available, and first-time home buyers should speak to their mortgage professional.