February 17, 2022
When you decide to buy a home, you don’t just walk out and make an offer on a home. There is a planning and saving stage, a house hunting stage, and an application stage of the home buying process.
That’s a bit of an oversimplification of how it works, but even as such it shows that there’s a lot to buying a home–the more planning you can do, the better off you will be.
One important issue related to the planning stage of the home loan process involves your budget. Figuring out how much home loan you can afford isn’t just about how your finances look today.
You will need to look to the future in terms of your job, your income, any raises or promotions that might affect how attractive you are to a lender, etc.
One aspect to pay close attention to? Your debt-to-income ratio or DTI. Will that ratio be lower six months into the future? If you aren’t sure, it’s worth investigating since DTI is a major factor for home loan approval.
You will also want to start looking at an estimated loan amount to shoot for and determine how much mortgage you could afford to pay every month.
If you can afford a monthly mortgage payment at a certain level, are the homes in your housing market priced within your budget?
Depending on circumstances this may or may not be an issue. What are your home loan alternatives if the housing market is too expensive for your budget? In some cases that might mean buying a smaller home, one farther away, or applying for a mortgage with a co-borrower.
It’s smart to consider looking for a home you can grow into, rather than grow out of but personal finances may dictate how you can go about doing that.
It’s important to explore all your options in cases where you aren’t sure you can afford the loan–a co-borrower, down payment assistance, and other options are worth researching.
In the planning phase of your homeownership journey, you will want to anticipate your closing costs and start saving for them. You may need to invest in hazard insurance, there may be compliance inspections to pay for, and you will want to budget for the all-important home inspection.
Some closing costs may be financed into the loan, but not all can. You will need money to pay for certain expenses upfront, which is why it’s a good idea to give yourself more time in the planning and saving stage to get those funds together.
Another thing to anticipate? Any moving expenses. It’s easy to overlook that one, but if you need a moving truck and movers to get you into your new home after closing day, that will be another item that affects your bottom line. Budget for these expenses as well as typical closing costs, you’ll be glad you did.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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