Tuesday, July 15, 2014

Is now the time to purchase the home of your dreams?

The choice between buying a home and renting is among the biggest decisions that most people will ever make.  But if you ask yourself if now is the time to buy, the answer is yes.  Here are some reasons why anyone who can afford to buy a home should consider it.

·         Pride of ownership is the number one reason why people desire to own their home.  Home ownership gives you and your family a sense of stability and security.  It is also an investment in your future.  When you pay rent, you do not end up owning anything.  When you pay a mortgage, you increase your equity in your home with every monthly payment.
·         Interest rates are still at a historic low rate and there is a chance your mortgage payment may be less than what you pay for rent.  In that case, it really does make sense to own your home rather than renting. 
·         Homeownership is one of the last remaining tax shelters.  In most cases, mortgage interest and property taxes reduce both taxable income and your overall tax liability.  That is a benefit you do not receive as a renter.  In addition, those who work from home may be eligible to take deductions for their home office. 
·         You have creative control for home improvements and enhancements, such as hanging pictures and changeing the color of the walls whenever you choose.
·         If you live in a rental, you are at the mercy of the landlord when repairs are made.  If you own a home, you can decide how to approach maintenance, either doing it yourself or hiring a contractor. 

Since purchasing a home is one of the largest assets that you will buy, it is a good idea to pre-qualify for your mortgage with a lender before you go shopping.  This will let you know how much you can afford and boost your bargaining power with the seller. 

When prequalifying with a lender the following factors will be used to determine your ability to repay the loan during the underwriting process:
·         credit history
·         income
·         stability of your employment history

In most cases a minimum of two years employment history is required.  Most lenders will not want your monthly mortgage payment (principal, interest, taxes, hazard insurance, private mortgage insurance and association fees) to exceed 28 percent of your gross monthly income and your total monthly debt to income ratio (i.e., mortgage payment , minimum monthly credit card payments, other loan payments and child support) to exceed 38 percent of your gross monthly income.  The remaining percentage of your income is left to pay for home maintenance, utilities, and other living expenses.  Some lenders may allow for a higher total monthly debt to income ratio.

There seems to be a misconception that lenders are requiring a 20 percent down payment but that is not true.  Most lenders are requiring a minimum of 5 percent down payment for conventional loans, and if you finance a FHA loan 3.5 percent is the minimum down payment.  Closing cost is estimated to be approximately $3,000 plus homeowners insurance and escrow reserves.  The cost to secure a rental property may exceed the closing cost to purchase when paying the first and last month rental payment and security deposit. 

Since credit is a main factor when making the decision to approve a mortgage loan, it is always a good idea for the borrower to get a free annual credit report at www.annualcreditreport.com to review prior to applying to see where they stand.  There may be items that need to be corrected or investigated further.

Many people have mixed feelings about purchasing a home because they are concerned about taking on additional debt and cost.  Borrowers should be well-informed of their own finances and consider all the elements of their current circumstance before making a decision.  However, now is a good time to buy while the rates are still low and the market is stable.

By: Lora Hollins
       Vice President and
       Mortgage Loan Officer