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Home Buyer Preparation

Answer These Questions to Find Out if You Are Ready to Buy a Home

The joy of owning your own home may not be as far away as you think.  Here are some questions that will help you measure your preparedness to buy a home of your own.  If you can answer yes to all of them you are ready.  If not, you will know the areas you need to work on.

Mortgage Considerations

Do you have regular income?  This may be from a job or any other source of income that can be expected to continue for the long term.  If your income is from employment the mortgage lender will probably require that you have at least 18-24 months history in the same type of employment.  Going to school to prepare for the type of employment you are involved in will also typically count towards that time frame.  It is also ok if you have recently changed jobs as long as you stayed in the same field.  In this case the lender would simply want to make sure that you are past any probationary employment period.

Is your income verifiable?  If you are an employee that receives a W-2 then you shouldn't have any trouble at all documenting your income.  If you are self-employed this can be tricky.  With recent changes in the mortgage industry many of the loans that were available for self-employed borrowers have been eliminated.  Especially those that provided for stated income or limited documentation.  You will likely be required to document your income using an average of the income shown on your tax returns for two or more years.  Unfortunately, tax documents are normally completed in way that minimizes income as much as legally possible.  They may not represent your true income, but this is what you will be limited too.

Is your credit history in good shape?  The better your credit scores are, the lower your interest rate will be.  As long as you have been paying your bills on time and don't have any accounts that are past due or in collections you should be just fine, however it is always a good idea to check your credit report to make sure there are no errors on it or items that don't belong on your report.  By law the credit bureaus are required to provide you with a free copy of your credit report once a year if you request it. 

Are your other debt payments low enough to allow for a mortgage loan?  Typically, the lender will allow a certain maximum percentage of your overall income to go towards servicing debt payments (including your mortgage).  When they calculate that percentage and deduct the amounts that will go towards your other debt payments the remainder is the payment amount they will allow for your mortgage.  Obviously, the more that goes towards other debt payments, like car loans, student loans and revolving credit, the less there will be left over to go towards a mortgage payment.  The lender will also adjust the amount allowed to go toward the mortgage payment to take into account the need to pay for homeowner's insurance, property taxes, mortgage insurance, homeowners or condo fees and any other related costs.

Do you have enough money available for a down payment?  The days of easy credit and nominal down payments are over.  Generally you are going to need to have at least three to five percent of the purchase price available for a down payment.  In certain cases this can be gift money or borrowed against a 401K. The higher your down payment is the lower your mortgage insurance premium and interest rate will be.

Other Considerations

Have you discussed the ideal home with your family?  When it comes to buying a home you want to make sure that you acquire a property that will suit your needs now and into the future.  Discuss this with your family.  Give each member of the household a chance to voice their opinion and make a list of the things that are mentioned.  Divide the list into needs and wants and prioritize each list so you know what is most important.  Having a clear idea of what you are looking for in a home will help make the search much easier. 

Have you talked to friends and associates about service providers?  When buying a home you will probably need the help of a several professionals.  This may include a real estate agent, a loan officer, a home inspector, a closing attorney and possibly others.  The best way to find professionals that will do a good job for you is by asking around and getting personal referrals.  There is nothing like first hand experience to be able to judge the quality of a person's service.

So, there you have it.  If you have answered "yes" to most or all of the above questions you are well on you way to owning the home of your dreams.  If you answered no to any of these questions, those are the areas you need to focus on.