Do I Make Enough Money to Buy a Home
The first question that most of my clients ask me is whether or not it’s a good time to buy, but the second question is always, “Do I make enough money to buy a home?” The answer is always specific to that individual, their income and level of debt, and what they are looking for in a home. No two families are going to have the exact same living arrangements or obligations, so we have to look at the bigger picture one family at a time.
There are things to consider when looking to buy a home. The first thing is location, and whether or not it makes sense for the family. School systems and family connections are usually at the top of the list of things to consider. The size of the family is what determines how many rooms they need and that mean everything from bedrooms to bathrooms. For other families it might be whether or not they are relocating for a job, or if they need to be closer to their current job. These are all things that families need to consider when buying a home.
Today, things are a little tighter in terms of what the bank will loan on versus the family’s current level of obligations. This is a positive thing, because for so long there were programs that brokers offered that allowed the buyer to go all the way up to 50% of their income. This wasn’t just the house payment, but this was 50% debt to income ration. What this means is, the underwriters were approving loans where a family’s monthly outgoing obligations were half of what they were bringing in. This doesn’t leave a lot of room for gas money, groceries, utilities and other unexpected things. With the price of gas going up, and other obligations this can be tough. To encourage better lending, underwriters are now limiting the debt to income ratio to go up to 38% and no higher.
The best way to ensure that you can buy a home is to put some money away every month toward a down payment. Having a larger down payment can keep your monthly mortgage payment down. A good rule of thumb is to put 20% down. Not only will this keep your payments down, but this will also help you start out with a little bit of equity. While most families cannot afford 20% down, there are options. There are loans available through the Federal Housing Authority known as FHA. An FHA loan is backed in good faith by the federal government. The guidelines are less stringent than a conventional loan and you can put down as little as 3.5%. The funds can be gifted, or you can get up to 6% in seller concessions.
The first step in buying a home is to make an honest assessment of your debt to income ratio, because this will help you see how much home you can afford. Then, the second step is getting an approval so that you have the peace of mind you need to move forward in the buying process. Then, you can begin looking for homes in your price range. Once you make an offer, you can feel good knowing that you are in the process of buying a home.